ECJ C-314/22 (Consortium Remi Group’ AD) – Questions – Possibility of exercising the right to a refund/set-off of VAT on account of full or partial non-payment of the price indicated in invoices issued

On May 11, 2022, a preliminary ruling (ECJ 314/22 – Consortium Remi Group’ AD) was requested to the ECJ by a Bulgarian Court.

Context: Possibility of exercising the right to a refund/set-off of VAT on account of full or partial non-payment of the price indicated in invoices issued, where a derogation from Article 90(1) of Directive 2006/112 has been made in accordance with the option under Article 90(2) of that directive. Admissibility of setting a limitation period for the exercise of that right and correct starting date of the period. Conditions for the exercise of that right, having regard to the fact that the taxable
entity’s contractual partners have been declared insolvent. Possibility for the taxable entity to rely on the direct effect of Article 90(1) of Directive 2006/112 in those circumstances.

Article in the EU VAT Directive

Article 90 of the EU VAT Directive 2006/112/EC.

Article 90 (Taxable amount – Miscellaneous provisions)
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.

Facts

Consortium Remi Group’ AD (‘CRG’) with registered office in Varna (Bulgaria) is engaged in the construction of buildings and facilities. It was registered under the ZDDS in 1995, but was deregistered on 7 March 2019 as it was found to have systematically breached its obligations under the ZDDS. By judgment of the Varnenski Okrazhen sad (Regional Court, Varna) of 18 September 2020, the company was declared insolvent and insolvency proceedings were commenced.
In 2006 to 2010 and 2012, CRG issued invoices to five Bulgarian companies for the supply of goods and the provision of services. VAT was charged on the invoices and that tax was paid for most of the taxable periods. The total amount of CRG’s VAT receivables according to those invoices is 618 171 leva (BGN).
By tax assessment notice dated 31 January 2011, CRG’s liabilities under the ZDDS for the period from 1 January 2007 to 1 July 2010 were established, hincluding the VAT charged in the invoices issued to one of the abovementioned companies ( ‘Company A’). CRG brought an action against the notice, which was, however, dismissed by a judgment of the administrative court at first instance, whose decision was in turn upheld by a judgment of the Varhoven administrative sad (Supreme Administrative Court).
CRG then went on to apply to the revenue authorities to set off an amount of BGN 1 282 582.19 – a principal amount of BGN 618 171.16 (the VAT charged in the invoices to the named recipients) and interest of BGN 664 411.03 (calculated from the first day of the month following the issue of the invoices until 31 July 2019) – against its liabilities under public law.
By a set-off and refund notice dated 6 March 2020, the revenue authority at Teritorialna direktsia na Natsionalna agentsia za prihodite, Varna (Territorial Directorate of the National Revenue Agency, Varna) refused to set off the VAT amounts wrongly paid and collected, in the amounts specified. The notice stated that the application for set off was made after the expiry of the limitation period pursuant to Article 129(1) of the DOPK. According to that provision, an application for set-off or refund is to be examined if it is made within a period of five years from 1 January of the year following the year in which the ground for refund arose, unless otherwise provided by law. Furthermore, the notice stated that CRG had neither proved that amounts totalling BGN 1 282 582.19 had been wrongly paid or collected, nor that it had definite (both in terms of the merits and the amount) and due claims against the fiscal authorities in the total amount mentioned.
CRG appealed to the administrative authorities against the set-off and refund notice. In support of its claims, it submitted court decisions regarding the commencement of insolvency proceedings against the companies that had received the invoices. Three of the companies had been declared insolvent and the start of the liquidation of their assets had been ordered. In addition, it submitted evidence that the claims in question had been asserted in the insolvency proceedings under the Targovski zakon (Law on Commerce), that they had been accepted by the insolvency administrators of the debtor companies and were listed in the schedules of claims accepted in the insolvency proceedings. The set-off and refund notice was upheld in full by decision of the Direktor na Direktsia ‘Obzhalvane i danachno-osiguritelna praktika’ [Varna] pri Tsentralno upravlenie na Natsionalnata agentsia za prihodite (Director of the Directorate ‘Appeals and Tax and Social Security Practice’ [Varna] at the Central Administration of the National Revenue Agency) (‘the Director’) of 22 May 2020.
After CRG was unsuccessful in its action against the set-off and refund notice before the Administrative Sad Varna (Administrative Court, Varna), it lodged an appeal in cassation with the referring court against the first-instance judgment of 16 February 2020. In the course of the examination of the merits of the appeal in cassation, the Supreme Administrative Court came to the conclusion that the resolution of the dispute required an interpretation of EU law.

Questions

In the event of a derogation in accordance with Article 90(2) of the VAT Directive, do the principle of neutrality and Article 90 of that directive allow a provision of national law such as the second sentence of Article 129(1) of the Danachno-osiguritelen protsesualen kodeks (Tax and Social Security Procedure Code), which provides for a limitation period for the submission of an application for a set-off or refund of the tax charged by the taxable entity in respect of the supply of goods or services in the event of total or partial non-payment by the recipient of the supply?
Irrespective of the answer to the first question, in the circumstances of the main proceedings, is it a necessary condition for the recognition of the right to a
reduction in the taxable amount under Article 90(1) of the VAT Directive that the taxable entity corrects the invoice which it has issued, as regards the VAT charged, on account of total or partial non-payment by the recipient of the price of the supply under the invoice, before submitting the application for a refund?
Depending on the answers to the first two questions: How must Article 90(1) of the VAT Directive be interpreted when determining the time at which the ground for a reduction of the taxable amount arises in the event of total or partial non-payment of the price where there is no national provision in place on account of a derogation from Article 90(1)?
How must the reasoning in the judgments of 27 November 2017, Enzo Di Maura (C-246/16, EU:C:2017:887, paragraphs 21 to 27), and of 3 July 2019, UniCredit Leasing (C-242/18, EU:C:2019:558, paragraphs 62 and 65) be applied if Bulgarian law does not contain any specific conditions for the application of the derogation under Article 90(2) of the VAT Directive?
Are the principle of neutrality and Article 90 of the VAT Directive consistent with a tax and insurance practice under which, in the event of nonpayment, no correction of the tax charged is permitted until the recipient of the supplies or services – provided that the recipient is a taxable entity – has been notified of the cancellation of the tax, so that the deduction initially made by the recipient is corrected?
Does the interpretation of Article 90(1) of the directive permit the assumption that a possible right to a reduction of the taxable amount in the event of total or partial non-payment gives rise to a right to a refund of the VAT paid by the supplier, plus interest for late payment, and from what point in time?

Source