Flashback on ECJ Cases – C-25/07 (Sosnowska) – Extension the period for refunding VAT to taxable persons from 60 to 180 days, unless a security of PLN 250,000 is provided, is prohibited

On July 10, 2008, the ECJ issued its decision in the case C-25/07 (Sosnowska).

Context: VAT – Directives 67/227/EEC and 77/388/EEC – National legislation determining conditions for repayment of excess VAT – Principles of tax neutrality and proportionality – Special derogating measures

Article in the EU VAT Directive

Article 18(4) of the Sixth VAT Directive (Article 183 of the EU VAT Directive 2006/112/EC)

Article 183 (Rules governing exercise of the right of deduction)
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

In her VAT return for the month of January 2006, the applicant reported payment of excess VAT to the amount of PLN 44 782. Relying on Article 18(4) of the Sixth VAT Directive, she then applied to the tax office of Świdnica for repayment of that excess to her within a period of 60 days from the date of submission of her VAT return.
On the basis of Article 87(1) and (2), and Article 97(5) and (7) of the Law on VAT, the tax office of Świdnica rejected her application. The opinion of that office was that the applicant could not obtain the repayment of the excess VAT within the period of 60 days, because, since she had commenced her activities less than 12 months earlier and since she had not supplied to the tax office a special deposit within the meaning of Article 97(7), she did not satisfy the conditions established by the Law on VAT for entitlement to the repayment sought.
The applicant submitted a complaint against that decision to the Dyrektor, who upheld the decision of refusal.

Questions

Does the third paragraph of Article 5 EC, in conjunction with Article 2 of First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes and Article 18(4) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, confer on a Member State the right to incorporate into national provisions on the tax on goods and services the rules laid down in Articles 97(5) and (7) of the Ustawa o podatku od towarów i usług (Law on the tax on goods and services) of 11 March 2004 …?

Do the rules laid down in Articles 97(5) and (7) of the Ustawa o podatku od towarów i usług of 11 March 2004 … constitute special measures to prevent certain types of tax evasion and avoidance within the meaning of Article 27(1) of the Sixth Directive?

AG Opinion

(1) Article 18(4) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, precludes in principle national measures like those at issue in the main proceedings which are disproportionate and as such undermine the implementation of fundamental principles of the common system of VAT, in particular the right to deduction.

(2) The rules laid down in national measures like those at issue in the main proceedings cannot be considered to constitute special measures to prevent certain types of tax evasion and avoidance within the meaning of Article 27(1) of Directive 77/388 where the formal procedure which is expressly provided for in Article 27 of Directive 77/388 has not been followed.

Decision

1. Article 18(4) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 2005/92/EC of 2 December 2005, and the principle of proportionality preclude national legislation, such as that at issue in the main proceedings, which, in order to allow investigations required to prevent tax evasion and avoidance, extends from 60 to 180 days, as from the date of submission of the taxable person’s VAT return, the period available to the national tax office for repayment of excess VAT to a category of taxable persons, unless those persons lodge a security deposit to a value of PLN 250 000.

2. Provisions such as those at issue in the main proceedings do not constitute ‘special measures for derogation’ intended to prevent certain types of tax evasion or avoidance within the meaning of Article 27(1) of the Sixth Directive 77/388, as amended by Directive 2005/92.

Summary

National legislation that extends the period for refunding VAT to taxable persons from 60 to 180 days, unless a security of PLN 250,000 is provided, in order to prevent tax evasion, is prohibited by Article 18(4) of the Sixth Directive and the principle of proportionality. Such provisions do not qualify as “special derogating measures” under Article 27(1) of the Sixth Directive to prevent tax evasion or avoidance.

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