ECJ C-794/23 (Finanzamt Österreich) – AG Opinion – VAT Liability for Incorrect Invoices Issued to Non-Taxable Persons

On December 19. 2024 ,the ECJ issued its decision in the case C-794/23 (Finanzamt Österreich).

Context: Request for a preliminary ruling – Value added tax (VAT) – Services – Incorrect, overstated VAT mentioned on invoices – Invoices issued to non-taxable persons who do not have a right to deduct input tax – Liability for the risk of loss of tax revenue – Identification of invoices posing a risk of loss of tax revenue – Procedural autonomy of the Member States – Burden of proof – Power of financial authorities to make estimates – Criteria for an appropriate estimate

Summary

Case Context: The case involves P GmbH, which mistakenly applied an incorrect VAT rate on invoices for its services to an indoor playground. The tax authorities denied a refund for overpaid VAT, leading to a legal inquiry about the liability for incorrectly stated VAT on invoices issued to non-taxable persons.
Legal Framework: The opinion discusses relevant provisions of the VAT Directive, particularly Article 203, which governs tax liability for incorrectly invoiced VAT. It emphasizes that liability arises only if there’s a risk of loss of tax revenue, which typically only pertains to invoices issued to taxable persons.
Distinction of Customers: The Advocate General indicates that the distinction between final consumers (non-taxable persons) and taxable persons is crucial. If services are provided predominantly to non-taxable persons, the issuer may not be liable for VAT on those invoices, regardless of whether other invoices were issued to taxable persons.
Estimation Criteria: In cases where it’s unclear how many invoices were issued to taxable persons, the tax authorities may estimate the proportion at risk of loss. The estimation criteria should consider the nature of the service provided and typical customer profiles, ensuring compliance with principles of fiscal neutrality and proportionality.
Recommendation: The Advocate General recommends that the Court of Justice clarify that a person is not liable for VAT under Article 203 for incorrect invoices issued to non-taxable persons, even if they also issued incorrect invoices to taxable persons, suggesting that estimates of liability should reflect the reality of typical customer use.

Articles on EU VAT Directive 20226/112/EC

Articles 193, 203, 220 and 238.

Article 193 (Liability to pay VAT)
VAT shall be payable by any taxable person carrying out a taxable supply of goods or services, except where it is payable by another person in the cases referred to in Articles 194 to 199b and Article 202

Article 203 (Liability to pay VAT)
VAT shall be payable by any person who enters the VAT on an invoice.

Article 220 (Issuance of an invoice)
1. Every taxable person shall ensure that, in respect of the following, an invoice is issued, either by himself or by his customer or, in his name and on his behalf, by a third party:
(1) supplies of goods or services which he has made to another taxable person or to a non-taxable legal person;
(2) supplies of goods as referred to in point (a) of Article 33 except where a taxable person is making use of the special scheme in Section 3 of Chapter 6 of Title XII;
(3) supplies of goods carried out in accordance with the conditions specified in Article 138;
(4) any payment on account made to him before one of the supplies of goods referred to in points (1) and (2) was carried out;
(5) any payment on account made to him by another taxable person or non-taxable legal person before the provision of services was completed.
2. By way of derogation from paragraph 1, and without prejudice to Article 221(2), the issue of an invoice shall not be required in respect of supplies of services exempted under points (a) to (g) of Article 135(1).

Article 238 (Simplified invoice)
1. After consulting the VAT Committee, Member States may, in accordance with conditions which they may lay down, provide that in the following cases only the information required pursuant to Article 226b shall be entered on invoices in respect of supplies of goods or services:
(a) where the amount of the invoice is higher than EUR 100 but not higher than EUR 400, or the equivalent in national currency;
(b) where commercial or administrative practice in the business sector concerned or the technical conditions under which the invoices are issued make it particularly difficult to comply with all the obligations referred to in Article 226 or 230.

3. The simplified arrangements provided for in paragraph 1 shall not be applied where invoices are required to be issued pursuant to points (2) and (3) of Article 220(1) or where the taxable supply of goods or services is carried out by a taxable person who is not established in the Member State in which the VAT is due or whose establishment in that Member State does not intervene in the supply within the meaning of Article 192a and the person liable for the payment of VAT is the person to whom the goods or services are supplied.

Facts

‘P GmbH’ (hereinafter ‘P’) is a company that operates an indoor playground. In 2019, it applied a VAT rate of 20% to the entrance fees it charged for the playground. A rate of 13% should have been applied to the entrance fees. After issuing a receipt showing this 20%, it adjusted its VAT return. Finanzamt Österreich ruled that a subsequent correction of the 20% VAT rate for 2019 was not allowed, because the invoices could not be corrected and the credit notes resulting from the VAT difference could not be sent to the company’s customers. P appealed against Finanzamt’s decision, arguing that the services were ‘almost exclusively’ provided to private individuals, who are not entitled to deduct input tax. The court of appeal upheld the appeal. The court of appeal estimated that the proportion of customers who had deducted input tax was 0.5% of total turnover.

Grounds for referral

Finanzamt claims that the court of appeal’s decision is not in line with the Court’s case-law. It follows from the case-law that a taxable person is not required to pay the incorrectly invoiced portion of the VAT if there is no risk of loss of tax revenue. In a previous case, the Court assumed that all of P’s customers were end-consumers who were not entitled to deduct input tax. However, in the present case, the risk of loss of tax revenue is not completely ruled out, which is why the referring court wonders whether the same reasoning can be applied. The referring court also has doubts as to how the concept of ‘end-consumer who is not entitled to deduct input tax’ within the meaning of Article 203 of the VAT Directive should be interpreted. The doubt here is whether this article means that a risk of loss of tax revenue exists only in relation to invoices issued to taxable persons.

Source: minbuza.nl

Questions

(1) Must Article 203 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax be interpreted as meaning that a taxable person who has provided a service and who has shown on his invoice an amount of value added tax (VAT) calculated on the basis of an incorrect rate is not required, under that provision, to pay the incorrectly invoiced portion of the VAT where the service specified in that invoice was provided to a non-taxable person, even if that taxable person has also provided similar services to other taxable persons?

(2) Should the term ‘end-consumer who is not entitled to deduct input tax’ within the meaning of the judgment of the Court of 8 December 2022, Finanzamt Österreich (incorrectly invoiced VAT to end-consumers) (C-378/21, EU:C:2022:968), be understood to mean only a non-taxable person or also a taxable person who uses the specific service only for private purposes (or for other purposes for which there is no right to deduct input tax) and therefore has no right to deduct input tax?

(3) On the basis of what criteria should it be assessed, in the case of a simplified invoice as referred to in Article 238 of Directive 2006/112/EC, for which invoices (possibly by means of an estimate) the taxable person is not required to pay the incorrectly invoiced amount because there is no risk of loss of tax revenue?

AG Opinion

(1) A person is not liable for VAT under Article 203 of the VAT Directive for the incorrect invoices it has issued to non-taxable persons, even if it has issued further incorrect invoices to other taxable persons, for which it is then liable for the tax under that article. If necessary, the proportion of such invoices is to be determined by means of an estimate.

(2) In that regard, the criteria for estimating the proportion of invoices that pose a risk of loss of tax revenue can be derived from the type of service and typical customers. Similarly, the circumstances giving rise to the error and the way in which the issuer of the invoice was involved in establishing the facts may be relevant criteria in that estimation.

Source

Curia

Reference to other ECJ Cases

Case C‑378/21: This case is specifically cited in relation to the interpretation of “final consumer who does not have a right to deduct input VAT.” It helps clarify whether this term refers only to non-taxable persons or also includes taxable persons using services for private purposes.
General Case Law on Article 203: The opinion discusses the overarching principles established in previous CJEU rulings about the strict liability associated with incorrectly invoiced VAT, emphasizing that the risk of loss of tax revenue must be evaluated on a case-by-case basis.
See Liability to pay VAT – VAT shall be payable by any person who enters the VAT on an invoice (Art. 203)