ECJ – Formal vs. material requirements of the Right to deduct VAT

On November 11, 2021, the ECJ issued its decision in the case C-281/20 (Ferimet, S. L.) – Decision – No Input VAT deduction for self-invoice with reverse charge VAT with fictitious supplier.

The court case develops an interesting argumentation on the Right to Deduct VAT, and more specifically when there is a suspicion that fraud is involved.

This newsitem deals the Formal vs. Material requirements of the Right to deduct VAT.

The right to deduct VAT is subject to compliance with material as well as formal conditions.

• Material conditions (Art. 168(a) of the EU VAT Directive 2006/112/EC)
  • the person concerned must be a ‘taxable person’
  • the goods or services must be supplied by another taxable person as inputs and those goods or services must be used by the taxable person for the purposes of his or her own taxed output transactions
  • Art. 168(a):
    In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
    (a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;

 

• Formal conditions (Art. 178(a) of the EU VAT Directive 2006/112/EC)
  • the taxable person must hold an invoice drawn up in accordance with Articles 220 to 236 and Articles 238 to 240 of that directive
  • Art. 178(a):
    In order to exercise the right of deduction, a taxable person must meet the following conditions:
    (a) for the purposes of deductions pursuant to Article 168(a), in respect of the supply of goods or services, he must hold an invoice drawn up in accordance with Sections 3 to 6 of Chapter 3 of Title XI;

 

• Referring ECJ Cases
  • • • C-518/14 Senatex – VAT deduction for non-compliant invoices (par, 28 & 29)
        •  28: Under Article 167 of Directive 2006/112, the right to deduct arises at the time when the deductible tax becomes chargeable. The substantive conditions which must be met in order for the right to arise are set out in Article 168(a) of that directive. Thus, for that right to be available, first, the person concerned must be a taxable person within the meaning of that directive and, secondly, the goods or services relied on to give entitlement to the right of deduction must be used by the taxable person for the purposes of his own taxed output transactions and those goods or services must be supplied by another taxable person as inputs (see, to that effect, judgment of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, paragraph 28 and the case-law cited).
        • 29: As regards the formal conditions for the right of deduction, in accordance with Article 178(a) of Directive 2006/112, the exercise of that right is subject to holding an invoice drawn up in accordance with Article 226 of that directive (see, to that effect, judgments of 1 March 2012, Kopalnia Odkrywkowa Polski Trawertyn P. Granatowicz, M. Wąsiewicz, C‑280/10, EU:C:2012:107, paragraph 41, and of 22 October 2015, PPUH Stehcemp, C‑277/14, EU:C:2015:719, paragraph 29). Under Article 226(3) of that directive, the invoice must mention inter alia the VAT identification number under which the taxable person made the supply of goods or services.
      • C-664/16 (Vadan) – No right to deduct VAT in the absence of invoices (par. 39 and 40)
        • 39: Under Article 167 of the VAT Directive, a right of deduction arises at the time the deductible tax becomes chargeable. The substantive conditions which must be met in order for the right to arise are set out in Article 168(a) of that directive. Thus, for that right to be available, first, the person concerned must be a taxable person within the meaning of that directive and, secondly, the goods or services relied on to give entitlement to the right of deduction must be used by the taxable person for the purposes of his own taxed output transactions and those goods or services must be supplied by another taxable person as inputs (judgment of 15 September 2016, Senatex, C‑518/14, EU:C:2016:691, paragraph 28 and the case-law cited).
        • 40: As regards the formal conditions for the right of deduction, it is apparent from Article 178(a) of the VAT Directive that the exercise of that right is subject to holding an invoice drawn up in accordance with Article 226 of that directive (judgment of 15 September 2016, Senatex, C‑518/14, EU:C:2016:691, paragraph 29 and the case-law cited).
      • C-610/19 (Vikingo Fővállalkozó Kft.) – Right to deduct VAT even if invoices cannot be considered credible (par. 43)
        • 43: The right to deduct VAT is, however, subject to compliance with both substantive requirements or conditions and formal requirements or conditions. With regard to the substantive requirements or conditions, it is apparent from the wording of Article 168(a) of Directive 2006/112 that, in order to have the right to deduct, it is necessary, first, that the interested party be a ‘taxable person’ within the meaning of that directive and, secondly, that the goods or services relied on to confer entitlement to the right to deduct VAT be used by the taxable person for the purposes of his or her own taxed output transactions, and that, as inputs, those goods or services be supplied by another taxable person. As to the detailed rules governing the exercise of the right to deduct VAT, which may be considered formal requirements or conditions, Article 178(a) of Directive 2006/112 provides that the taxable person must hold an invoice drawn up in accordance with Articles 220 to 236 and Articles 238 to 240 of that directive (judgment of 12 April 2018, Biosafe – Indústria de Reciclagens, C‑8/17, EU:C:2018:249, paragraphs 30 to 32 and the case-law cited).