Comments on ECJ C-83/23: Unrecoverable VAT Paid by Buyer to Supplier

In the case C-83/23 H GmbH, dated September 5, 2024, the European Court of Justice (ECJ) ruled that the German Treasury is not obliged to refund the incorrectly charged VAT to the buyer, since the tax administration had already refunded the VAT to the supplier. The supplier should have subjected the transaction to Italian VAT.

The main dispute involves sales of new boats with a leasing agreement between KG (a German company now succeeded by the claimant H) and E-GmbH (also established in Germany). E-GmbH purchased the boats from an Italian company that did not charge VAT, considering the transactions as “intra-community supplies.” For each boat, the two German companies signed a sales contract (E-GmbH to KG) and a 36-month lease contract (KG to E-GmbH). The sale was subjected to German VAT, which E-GmbH paid, and KG deducted.

However, tax audits revealed that the boats were in Italy at the time of the sales, meaning the transactions should have been subject to Italian VAT as domestic supplies without transport (under Article 31 of Directive 2006/112). The erroneously applied German VAT was not deductible.

E-GmbH later underwent insolvency proceedings, during which the administrator reissued invoices without German VAT and requested a VAT correction from the German Treasury, which was granted, resulting in a refund to E-GmbH. However, the Italian fiscal representative of E-GmbH did not issue VAT-included invoices to KG, which did not pursue legal action to enforce this but instead requested a review of the German VAT from the tax authorities, which was denied.

The question before the ECJ was the recoverability of the wrongly invoiced VAT, which is governed by the member states in the absence of harmonized provisions. The ECJ has previously indicated in the Reemtsma case (C-35/05) that:

1. The supplier can obtain a refund of the wrongly paid VAT from the Treasury.
2. The buyer can claim the undue payment from the supplier through civil action. Incorrectly applied VAT is not a tax but an overpayment.

However, the ECJ also noted that if recovery from the supplier is impossible or excessively difficult (e.g., due to insolvency, as in the Reemtsma case, or liquidation, as in the Humda case C-397/21), the buyer can directly approach the tax authorities.

This principle does not apply here because the German Treasury already refunded the VAT to the insolvency administrator, and a double refund would harm fiscal interests. Direct recovery from the tax authorities is an exception only if the buyer has exhausted all other avenues to enforce their rights, which did not happen in this case. The referring court noted that the claimant could have initiated a civil action against the insolvency administrator to obtain an Italian VAT-included invoice, which would have allowed H (formerly KG) to request a refund from the Italian tax authorities.