ECJ C-429/23 (NARE-BG) – Judgment – No Right to deduct input VAT for supplies received before their registration under national law during COVID-19

On September 12, 2024, the ECJ issued the judgment in the case C-429/23 (NARE-BG).

Context: Reference for a preliminary ruling — Common system of value added tax (VAT) — Directive 2006/112/EC — Right to deduct — Time limits for declaring and paying certain taxes — Extension on account of the COVID-19 pandemic — Refusal to exercise the right to deduct VAT — Limitation — Principles of equivalence, effectiveness and neutrality of VAT

Summary

The case involves NARE-BG, a company facing irregularities in offsetting and reimbursing amounts due to technical errors in their invoice statements. The tax authority denied their right to deduct input tax, stating that the deadline for doing so had passed. The referring court questions whether NARE-BG can correct their return and exercise their right to deduct input VAT for supplies received before their registration under national law. They also question the compatibility of national provisions and practices with the VAT Directive and principles of fiscal neutrality, equivalence, and effectiveness. The case differs from previous ones due to specific legal provisions during the COVID-19 pandemic. Another question arises regarding the difference between this case and the State Secretary for Finance judgment concerning the period for submitting the correction statement. The Court of Justice of the European Union concludes that national legislation and administrative practice can deny the right to deduct input VAT if the declaration is made after the expiration of the limitation period, even if national measures extended time limits for declaring and paying taxes, excluding VAT.

Article in the EU VAT Directive

Article 184 and 186 of the EU VAT Directive 2006/112/EC.

Article 184
The initial deduction shall be adjusted where it is higher or lower than that to which the taxable person was entitled.

Article 186
Member States shall lay down the detailed rules for applying Articles 184 and 185.

Facts

Summary

The tax authority found irregularities in the amounts to be offset and reimbursed by NARE-BG due to technical errors in their invoice statements for November and December 2020. The tax authority denied their right to deduct input tax, stating that the deadline for doing so had already passed.
The referring court is questioning whether NARE-BG can correct their return and exercise their right to deduct input VAT for supplies received before their registration under national law. They are also questioning whether the national provisions and practices are compatible with the Directive Council on the common system of value added tax and the principles of fiscal neutrality, equivalence, and effectiveness.
The difference in this case compared to previous cases lies in the specific legal provisions during the COVID-19 pandemic, which provide for longer periods for declaration and payment of taxes due but not for the declaration, payment, and right of deduction with regard to VAT.
Another preliminary question arises regarding the difference between this case and the State Secretary for Finance judgment with regard to the period for submitting the correction statement.

Detailed

When issuing an additional tax assessment, the defendant party, the tax authority, found irregularities at the requesting party, NARE-BG EOOD (hereinafter: NARE-BG), with regard to the amounts to be offset and reimbursed. In 2021, NARE-BG has already informed the tax authorities under the Value Added Tax Law (hereinafter: national law) that, due to the COVID pandemic and quarantine, it has identified technical errors in the statements of invoices for the tax periods November and December 2020. The tax authority denied the right to deduct input tax and pointed out that the deadline under national law for exercising the right to deduct input tax for the invoices mentioned in the additional assessment notice expired in December 2020 and the right to deduct input tax is excluded . According to the tax authority, NARE-BG has exercised the right to full input tax deduction in violation of a national law provision and the input tax deduction for December 2020 for the said invoices should be adjusted. NARE-BG was therefore denied the right to deduct input tax in the additional tax assessment. According to the tax authority, NARE-BG has exercised the right to full input tax deduction in violation of a national law provision and the input tax deduction for December 2020 for the said invoices should be adjusted. NARE-BG was therefore denied the right to deduct input tax in the additional tax assessment. According to the tax authority, NARE-BG has exercised the right to full input tax deduction in violation of a national law provision and the input tax deduction for December 2020 for the said invoices should be adjusted. NARE-BG was therefore denied the right to deduct input tax in the additional tax assessment.

Consideration:

In Bulgaria, specific regulations were adopted during the COVID pandemic and the said regulations provided for an extension of the deadlines for declaration and payment of certain taxes, but did not provide for this possibility for declaration, payment and right of deduction of value added tax. In the present case, according to the referring court, the question arises whether the applicant is permitted to correct the return subsequently – by submitting a VAT return for December 2020 and a correction statement for November 2020 – and to exercise the right to deduct input VAT for supplies that it received before the date of its registration under national law. The referring court asks the Court whether the applicable national provisions and practices do not make in practice impossible or excessively difficult the exercise of the right to deduct input VAT in these circumstances and whether they are compatible with Articles 184 and 186 of the Directive Council 2006/112/EC of 28 November 2006 on the common system of value added tax and the principles of fiscal neutrality, equivalence and effectiveness. The referring court points out that the difference in the present case with regard to the circumstances in the EMS-Bulgaria Transport and Ecotrade judgments lies in the specific legal provisions which, due to the difficulties faced by economic operators in the context of the COVID-19 pandemic , provide for longer periods for the declaration and payment of taxes due, but not a similar possibility for the declaration, payment and right of deduction with regard to VAT. According to the referring court, the second preliminary question arises from the difference between the circumstances of the case in which the State Secretary for Finance judgment was delivered and the circumstances of the present case with regard to the period for submitting the correction statement.

Questions

1) Has a limitation period such as that at issue in the main proceedings – against the background of the measures introduced by law to contain the epidemic, including the imposition of administrative measures to restrict leaving the home and freedom of movement in places limit contact with other people and close shops,where, in the context of those measures to contain the epidemic, the deadlines for the declaration and payment of tax debts in accordance with the Zakon za korporativnoto podohodno oblagane (Corporate Tax Act) (which sets the deadlines for the declaration and payment of income taxes under national law regulations) have been extended – has the effect of making in practice impossible or excessively difficult the exercise of the right to deduct input VAT by taxpayers during the period in which the measures to contain the epidemic apply and and, from this point of view, national regulations are and practices of the tax authorities such as those at issue in the main proceedings,compatible with Article 184 in conjunction with Article 186 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1; hereinafter: ‘VAT Directive’) , in the light of the principle of fiscal neutrality established by that directive and the principles of equivalence and effectiveness under EU law (judgment of 8 May 2008, Ecotrade, C-95/07 and C-96/07, EU:C:2008:267 )?

2. In the circumstances of the present case, in the light of the possibility provided for in the Zakon za danak varhu dobavenata stoynost (Value Added Tax Act (hereinafter: ‘ZDDS’)) to correct the data provided by VAT return in accordance with the ZDDS, pursuant to Article 184 in conjunction with Article 186 of the VAT Directive, a practice of the tax authorities is permissible whereby a taxable person is denied the right to deduct input VAT on the grounds that the VAT was declared in a regularization return submitted to to correct data for the last tax period of the expiry period (twelve months) for the exercise of the right to deduct input tax on supplies received by the taxable person before his registration under the ZDDS,insofar as the transactions were not concealed, the details of their implementation were included in the applicant’s accounts, the tax authorities had the necessary information and there was no indication that the budget had suffered damage?

AG Opinion

None

Decision

Article 184 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2010/45/EU of 13 July 2010, read in conjunction with Article 186 of Directive 2006/112, as amended by Directive 2010/45, and the principles of equivalence, effectiveness and neutrality of value added tax (VAT)

must be interpreted as meaning that

do not preclude national legislation and administrative practice under which a taxable person is refused the right to deduct input VAT paid before that person’s VAT registration on the ground that he has applied for that deduction after the expiry of the limitation period laid down by the applicable national legislation by means of a declaration seeking to correct a VAT return; submitted before the expiry of that period, notwithstanding the fact that, in connection with the COVID-19 pandemic, national measures were adopted in order to extend the time limits for declaring and paying certain taxes, among which, however, VAT is not included.

Summary

Source