On May 16, 2013, the ECJ issued its decision in the case C-191/12 (Alakor Gabonatermelő és Forgalmazó).
Context: Non-repayment of the entirety of value added tax unduly paid – National legislation precluding repayment of VAT because it has been passed on to a third party – Compensation in the form of aid covering a fraction of the non-deductible VAT – Unjust enrichment
Article in the EU VAT Directive
Rule 7 of Commission Regulation (EC) No 448/2004 of 10 March 2004 amending Regulation (EC) No 1685/2000 laying down detailed rules for the implementation of Council Regulation (EC) No 1260/1999 as regards the eligibility of expenditure of operations co-financed by the Structural Funds and withdrawing Regulation (EC) No 1145/2003 (OJ 2004 L 72, p. 66) is worded as follows:
‘Rule No 7: VAT and other taxes and charges
1. VAT does not constitute eligible expenditure except where it is genuinely and definitively borne by the final beneficiary, or individual recipient within the aid schemes pursuant to Article 87 of the Treaty and in the case of aid granted by the bodies designated by the Member States. VAT which is recoverable, by whatever means, may not be considered eligible, even if it is not actually recovered by the final beneficiary or individual recipient. The public or private status of the final beneficiary or the individual recipient is not taken into account for the determination whether VAT constitutes eligible expenditure in application of the provisions of this rule.
2. VAT which is not recoverable by the final beneficiary or individual recipient by virtue of the application of specific national rules shall only constitute eligible expenditure where such rules are in full compliance with the Sixth Council Directive 77/388/EEC [of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1, “the Sixth Directive”)]’.
Facts
- During 2005, Alakor concluded a subsidy contract with the Földművelésügyi és Vidékfejlesztési Minisztérium (Ministry of Agriculture and Rural Development, ‘the Funds provider’), aimed at enabling it to finance a project under the operational programme for agriculture and rural development relating to the second half of 2005 (‘the aid’).
- As a consequence of Article 38(1)(a) of the Law on VAT, in its version in force at the material time, it was not possible to deduct, proportionally to the amount of the aid, the part of input VAT paid on costs relating to the subsidised project.
- By contrast, under Ministry of Finance guidelines, the ‘eligible expenditure’ of a subsidised project included, for the purposes of calculating the aid, part of the VAT corresponding to a percentage of the project financed by that aid. Accordingly, in the present case, the eligible expenditure of the project at issue in the main proceedings came to HUF 207 174 606 in total, including HUF 18 645 714 of non‑deductible VAT. For the purposes of financing that project, the Funds provider granted aid of HUF 90 000 000, corresponding to 43.44% of the eligible expenditure for the project, 75% of that aid being financed by Community funds and 25% being borne by the national budget.
- The assessment of VAT relating to development expenditure was included in the monthly VAT returns for September and November 2005, and also those for December 2005 and January 2006 with a view to a claim to offset tax in the following period. Under Article 38(1)(a) of the Law on VAT, Alakor was unable to exercise its right to deduct HUF 4 440 000 of VAT relating to development expenditure paid in advance and calculated in the return for September 2005 and HUF 13 282 000 of that calculated in the return for November 2005, which represented a total of HUF 17 722 000.
- In Case C‑74/08 PARAT Automotive Cabrio [2009] ECR I‑3459, the Court held that ‘Article 17(2) and (6) of the Sixth Directive must be interpreted to the effect that it precludes national legislation which, in the case of acquisition of goods subsidised by public funds, allows the deduction of related VAT only up to the limit of the non-subsidised part of the costs of that acquisition’.
- In the light of that judgment, Alakor considered that it could deduct the entirety of the input VAT paid for the requirements of its taxable operations and that the VAT previously considered as being non‑deductible could not continue to form part of the eligible expenditure of the project at issue. Consequently, on 21 July 2009 Alakor repaid the Funds provider the amount of the aid corresponding to the non‑deductible VAT and requested it to amend the contract. The Funds provider declined that request and returned the amount received to Alakor.
- On 22 July 2009, Alakor submitted to the tax authority regularisation declarations for September, November and December 2005 and for January 2006, in which, on the basis of PARAT Automotive Cabrio, it applied for repayment of the VAT which the limitation on the right to deduct had prevented it from deducting – HUF 17 722 000 in total – with interest for late payment.
- In response to that request, the first-instance tax authority set the tax deductible and the sums to be paid to Alakor at a lower amount than that declared by Alakor in its regularisation declarations. The Főigazgatósága upheld those decisions noting that Alakor had already obtained, by means of aid, an amount corresponding to 43.44% of the non-deductible VAT. Therefore, pursuant to Articles 124/C(3)(a) and 124/D(5) of the General Law on Taxation, that sum had to be regarded as having been passed on.
- Hearing the appeal for amendment or annulment of the decisions made by the tax authority, the court of first instance found that those appeals were well founded, annulled the decisions at issue on the ground that they unlawfully restricted the right to deduct contrary to PARAT Automotive Cabrio, and ordered the tax authority to recommence its assessment procedure.
- The Főigazgatósága appealed to the Court of Cassation, claiming, in particular, that Alakor had already received, in the form of aid, part of the VAT which it sought to recover in the regularisation declarations. Consequently, according to the Főigazgatósága, only the part of the VAT which was not offset by that aid ought to have been subject to repayment.
- For its part, Alakor claims that Articles 124/C and 124/D of the General Law on Taxation were contrary to EU law and that the decisions of the tax authorities were incompatible with Rule No 7 of Regulation No 448/2004. In Alakor’s view, the tax authorities had accordingly infringed EU law by restricting its right to deduct and refusing to repay to it the total amount of VAT but instead paying an amount calculated on a proportional basis. Moreover, Alakor could be required to repay the aid on the ground that it had infringed the State aid rules for rural development.
Questions
(1) Can the fact that a taxpayer – where there is a prohibition on deducting VAT – has obtained aid in such a manner that this also funds VAT or has obtained additional State aid as compensation for non-deductible VAT be categorised as the passing on of tax according to EU law?
(2) If the answer is in the affirmative, would the answer be the same if the taxpayer did not receive the aid from a Member State or from the tax authority of a Member State, but instead the aid was co-financed – pursuant to the contract concluded with the Funds provider – from the European Union and the Member State’s central budget?
(3) Can the principles of repayment of VAT based on fiscal neutrality and of effectiveness, equivalence and equal treatment be regarded as satisfied, and the prohibition on unjust enrichment complied with, where – owing to legislation on the right to deduct that is contrary to European Union law – the tax authority of a Member State upholds the taxpayer’s claim for repayment or damages only in relation to that part or proportion not previously funded through the aid referred to [in the first two questions] above?
AG Opinion
None
Decision
The principle of repayment of taxes levied in a Member State in infringement of the rules of EU law must be interpreted as meaning that it does not preclude that State from refusing to repay part of the value added tax, the deduction of which had been precluded by a national measure contrary to European Union law, on the ground that that part of the tax had been subsided by aid granted to the taxable person and financed by the European Union and by that State, provided that the economic burden relating to the refusal to deduct value added tax has been completely neutralised, which is for the national court to determine.
Summary
The principle of the refund of taxes collected in a Member State in breach of EU law does not preclude that State from refusing part of the VAT which could not be deducted as a result of a national measure contrary to EU law, on the ground that this part of the tax has been subsidized by aid granted to the taxable person and financed jointly by the European Union and that State, provided that the economic burden resulting from the refusal to deduct VAT is complete neutralised, it is for the national court to verify whether this is the case.
Source:
Similar ECJ cases
Newsletters
