ECJ C-640/23 (Greentech) – Questions – Deduction of VAT in case VAT has been collected and cannot be refunded under national law

The question referred for a preliminary ruling came from the Înalta Curte de Casaţie şi Justiţie in Romania.

Articles in EU VAT Directive

Articles 2, 19, 168 and 203 of the EU VAT Directive 2006/112/EC.

Facts & background

Facts:

The applicant, Direcție Generală Regională a Finanțelor Publice Galați (Regional Directorate of Public Finances, Tax Office), carried out a tax audit at the branch of defendant Greentech SA (hereinafter: Greentech) between 23 November 2015 and 15 July 2016. Based on the audit, additional VAT obligations have been established with additional charges against Greentech. This assessment is based on the sale of production assets by Greenfiber International SA (hereinafter: GFI) to Greentech, which is regarded as a partial transfer of assets between two affiliated companies, which is a transaction not subject to VAT. Greentech objects to this categorization, because Greentech itself had declared this sales transaction as a supply of goods subject to VAT. This therefore concerns a requalification of the sales transaction. The consequence of this reclassification is that the national tax authorities have treated the commercial transaction in question differently: as a transaction for which VAT is due with regard to GFI, from which Greentech purchased the means of production and to which it has paid VAT, and with regard to Greentech as not subject to VAT. VAT taxable transaction. As a result, Greentech was not entitled to deduct the VAT paid here and the money could no longer be reclaimed. The dispute was dealt with on appeal and subsequently on appeal. Greentech has filed a request for review in this case, arguing that the decision was contrary to the Court’s case law.

Consideration:

The present case concerns the interpretation of Directive 2006/112, in particular the question whether the tax authorities of a Member State may, in conjunction with the principles of fiscal neutrality, legal certainty and the protection of legitimate expectations, refuse the right to deduct VAT paid on a sales transaction that has been reclassified by tax authorities as a transfer of assets not subject to VAT. The problem here is that the VAT had already been collected in favor of the treasury and could no longer be reclaimed by the taxpayer due to the expiry of the tax limitation period. In addition, the national scheme does not contain procedural instruments and mechanisms allowing the tax authorities to refund the VAT amount paid in the event of such requalification. The referring court has doubts as to whether the principle of fiscal neutrality is complied with in the present case, because the Court’s settled case law shows that any limitation of the right to deduct constitutes a violation of the principle of fiscal neutrality. In addition, the referring court notes that, according to the Court’s settled case-law, any economic operator on whom reasonable expectations have been raised by an institution can rely on the principles of legal certainty and the protection of legitimate expectations.

Questions

Do the principles of neutrality, legal certainty and protection of legitimate expectations, as laid down in Articles 2, 19 and 168 in conjunction with Article 203 of Directive [2006/112], preclude the right to deduct VAT paid on a sales transaction subsequently classified by the tax authorities as a business transfer falling outside the scope of VAT, where that VAT has already been collected in favor of the treasury and cannot be refunded under national law?

Summary

The case involves a tax audit conducted by the Regional Directorate of Public Finances on Greentech SA. Additional VAT obligations were imposed on Greentech based on the sale of assets by Greenfiber International SA.
Greentech disagrees with the categorization and argues that it should be subject to VAT.
The dispute centers around whether tax authorities can refuse the right to deduct VAT paid on a sales transaction that has been reclassified as a transfer of assets not subject to VAT.
The referring court has doubts about compliance with the principles of fiscal neutrality, legal certainty, and protection of legitimate expectations.
The preliminary question asks whether these principles prevent the deduction of VAT in such cases where the VAT has already been collected and cannot be refunded under national law.

Source