On December 5, 2024, the ECJ issued its decision in the case C-680/23 (Modexel).
Context: Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – First paragraph of Article 183 – Rules governing the exercise of the right of deduction – Carrying forward excess VAT – Concept of ‘following period’ – Refund of excess VAT – Cessation of economic activity
Summary
- Case Background: The Court of Justice ruled on the interpretation of Article 183 of Directive 2006/112/EC concerning excess VAT for a company that ceased and later resumed economic activity.
- Excess VAT Handling: The Court determined that national legislation can require a refund request within 12 months of ceasing activity, rather than allowing excess VAT to carry forward to a later period when the activity resumes.
- Taxable Person Status: Cessation of economic activity results in the loss of taxable person status, meaning there is no “following period” to carry forward excess VAT.
- Principles of Equivalence and Effectiveness: National measures must comply with these principles, ensuring that the process does not render VAT refund claims impossible or excessively difficult.
- Court’s Decision: The Court upheld that the Portuguese legislation does not violate EU law, provided it respects the principles of equivalence and effectiveness in refunding excess VAT.
Article in the EU VAT Directive
Article 183 of the EU VAT Directive 2006/112/EC.
Article 183 of the VAT Directive (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
- Modexel – Consultores e Serviços, SA, filed a declaration of cessation of activity with effect from 28 February 2015.
- At the time of cessation of activity, it declared a balance in its favour in respect of valued added tax (VAT) in the amount of EUR 12 456.20.
- It recommenced its activity on 10 May 2016, filing the appropriate declaration of recommencement of activity.
- When it recommenced its activity, it deducted the amount of the balance in its favour, seeking to offset that amount in the first return filed after it recommenced its activity.
- The Tax Authority of the Autonomous Region of Madeira refused to allow it to do so, arguing that Modexel – Consultores e Serviços, SA should have applied for a refund of the balance in its favour within 12 months from the date on which it ceased its activity and that, since it had not done so, that amount had reverted to the Portuguese State.
Questions
1) Must the expression “the following period” in Article 183 of the VAT Directive be interpreted as referring literally to the period which immediately follows in the calendar year?
2) If the answer to question 1 is in the negative, where an undertaking ceases its activity and subsequently recommences that activity, with a period of 15 months having elapsed between those two points in time, is that undertaking entitled to deduct the amount of the excess which it carried forward when it ceased its activity in the first assessment that it files after recommencing its activity?
AG Opinion
None
Decision
The first paragraph of Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax
must be interpreted as not precluding national legislation which provides that, where a taxable person ceases economic activity, that person may not carry excess value added tax, declared at the time of that cessation of activity, forward to a following period and may recover that amount only by requesting a refund within 12 months from the date on which that activity ceased, provided that the principles of equivalence and effectiveness are observed.
Source
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