On September 15, 2016, the ECJ issued its decision in the case C-516/14 (Barlis). It deals with the VAT invoicing requirements, more specifically on the description on the invoice.
Summary
Context: This case involves a preliminary ruling concerning the interpretation of Articles 178(a) and 226(6) and (7) of Council Directive 2006/112/EC, which governs the common system of value-added tax (VAT) within the EU. The Tribunal Arbitral Tributário (Tax Arbitration Tribunal, Portugal) referred the case following a dispute between Barlis 06 — Investimentos Imobiliários e Turísticos SA and the Portuguese Tax and Customs Authority regarding the right to deduct VAT based on insufficiently detailed invoices for legal services.
Background: Barlis provided legal services from 2008 to 2010 and subsequently sought to deduct VAT indicated in invoices from its tax liabilities. The tax authority rejected Barlis’s VAT deduction claims, arguing that the invoices did not meet the formal requirements specified by national legislation, particularly that they lacked detailed descriptions of the services rendered.
Legal Framework:
- Article 178(a) states that a taxable person must hold an invoice drawn up in accordance with specific articles of the directive to exercise the right of VAT deduction.
- Article 226 specifies the details required in invoices, including:
- Article 226(6): The extent and nature of the services rendered.
- Article 226(7): The date on which the service was supplied or completed.
Dispute Details: The invoices in question contained vague descriptions such as “legal services rendered from [date] until the present date,” which the tax authority deemed insufficient. Despite Barlis providing additional documentation attempting to clarify the services, the authorities maintained that these did not constitute valid amendments to the invoices, thus denying the VAT deduction.
Facts and background
- Claimant: Barlis 06 — Investimentos Imobiliários e Turísticos SA
- Defendant: Autoridade Tributária e Aduaneira (Tax and Customs Authority, Portugal)
Context: Barlis 06 is a company based in Lisbon, Portugal, that operates hotels and restaurants. From 2008 to 2010, Barlis engaged the services of a law firm to provide legal services related to its business operations.
Dispute Origin:
- Barlis received a series of invoices from the law firm for the legal services rendered during the specified period. The invoices included general descriptions such as “Legal services rendered from [date] until the present date” without providing specific details about the nature or extent of those services.
- Barlis attempted to deduct the VAT paid on these services from its tax liabilities as part of its business operations.
Tax Authority’s Response:
- Upon Barlis’s request for VAT reimbursement, the Portuguese Tax and Customs Authority conducted a review of the invoices and determined that the descriptions provided did not meet the formal requirements established by the national VAT Code and the EU Directive on VAT.
- The authority concluded that the invoices lacked sufficient detail to allow for a valid deduction of VAT. Specifically, they argued that the invoices did not clearly specify the extent and nature of the services rendered, nor did they provide the necessary information to determine applicable tax rates.
Legal Proceedings:
- Barlis disputed the tax authority’s decision and provided additional documentation detailing the legal services rendered, arguing that the invoices should be considered valid for VAT deduction purposes.
- The tax authority rejected this argument, maintaining that the invoices themselves were insufficient and that the additional documents could not serve as replacements or amendments to the invoices.
Referral to the Court:
- Following the dismissal of its administrative appeal, Barlis sought arbitration. The case was referred to the Tribunal Arbitral Tributário (Tax Arbitration Tribunal) in Portugal, which subsequently decided to refer questions to the Court of Justice of the European Union (CJEU) regarding the interpretation of specific provisions of the VAT Directive (2006/112/EC).
- The tribunal sought clarification on whether the vague descriptions on the invoices could be deemed compliant with EU VAT requirements and whether the tax authorities could deny VAT deductions based solely on formal deficiencies in the invoices despite having access to all necessary information regarding the services rendered.
Court’s Analysis:
- First Part of the Question: The Court examined whether invoices stating “legal services rendered from [date] until the present date” complied with the requirements of Article 226. It concluded that while invoices must indicate the extent and nature of services, general terms like “legal services” do not sufficiently detail the nature of services provided. Thus, these descriptions do not meet the specificity required under Article 226(6). Invoices lacking a start date for the service period also fail to satisfy Article 226(7).
- Second Part of the Question: The Court then addressed whether the tax authorities could refuse the VAT deduction solely based on the invoices lacking specific details. It reaffirmed the fundamental principle of VAT neutrality, stating that the right to deduct VAT should not be denied if the substantive conditions are met, even if formal requirements are not fully satisfied. The Court emphasized that tax authorities must consider all available information, including additional documents provided by the taxable person, to ascertain whether the right to deduct is valid.
Conclusion: The Court ruled that invoices referring only to “legal services rendered” do not inherently comply with the requirements of Article 226. Furthermore, national tax authorities cannot refuse VAT deductions solely based on insufficient invoicing details if they possess all necessary information to confirm the substantive conditions for the deduction.
This judgment underscores the balance between formal compliance and the substantive rights of taxpayers within the VAT framework, highlighting the importance of context and additional evidence in tax matters.
Question
Must Article 226(6) of [Directive 2006/112] be interpreted as permitting the Tax and Customs Authority to regard as insufficient a description on an invoice which states “legal services rendered from such a date until the present date” or merely “legal services rendered until the present date”, where that body may, in accordance with the principle of collaboration, obtain the additional information which it deems necessary to confirm the existence and detailed characteristics of the relevant transactions?
AG Opinion
- (1) An invoice which includes, by way of details of the nature of the service, merely the description ‘legal services rendered’ meets the requirements of Article 226(6) of Directive 2006/112/EC, unless national law, in a manner which conforms with EU law, provides for different VAT treatment of certain legal services.
- (2) An invoice which includes, by way of details of the extent of the service, merely the description ‘legal services rendered from such a date until the present date’ or merely ‘legal services rendered until the present date’ does not satisfy the requirements of Article 226(6) of Directive 2006/112/EC.
- (3) An invoice which includes, by way of details of the date of a service, merely the description ‘legal services rendered until the present date’ does not satisfy the requirements of Article 226(7) of Directive 2006/112/EC.
- (4) In accordance with Article 178(a) of Directive 2006/112/EC, it is in principle not sufficient, for the exercise of the right of deduction, that the recipient of an invoice who seeks to exercise that right supplements the details missing from an invoice, contrary to Article 226(6) and (7) of Directive 2006/112/EC, by other information, unless that other information consists of documents which are themselves to be regarded as part of the invoice. If the invoice is not corrected, in such a case it is possible to exercise the right of deduction only if the correction is in any case no longer capable of fulfilling the invoice’s monitoring function in relation to the person who issued the invoice.
Judgment
Article 226 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that invoices mentioning only ‘legal services rendered from [a date] until the present date’, such as those at issue in the main proceedings, do not a priori comply with the requirements of point 6 of that article and that invoices mentioning only ‘legal services rendered until the present date’ do not a priori comply either with the requirements of point 6 or with those of point 7 of that article, which is, however, for the referring tribunal to ascertain.
Article 178(a) of Directive 2006/112 must be interpreted as precluding the national tax authorities from refusing the right to deduct value added tax solely because the taxable person holds an invoice which does not satisfy the conditions required by Article 226(6) and (7) of that directive, even though those authorities have available all the necessary information for ascertaining whether the substantive conditions for the exercise of that right are satisfied.
Source
Reference to other ECJ Cases
- Pannon Gép Centrum Kft (C‑368/09) – This case is cited to establish that Member States cannot impose additional conditions for VAT deductions beyond what is specified in the EU VAT Directive. The CJEU emphasized the importance of adhering to the directive’s provisions regarding the right to deduct VAT.
- Maks Pen (C‑18/13) – Cited to highlight that the right to deduct VAT is a fundamental principle of the VAT system and should not be limited without valid justification. This case reinforces the notion that the right to deduct is integral to the VAT scheme.
- PPUH Stehcemp (C‑277/14) – This case discusses the principle of VAT neutrality, stressing that the deduction system should relieve operators of the burden of VAT incurred in the course of their economic activities, provided that the substantive conditions are met.
- Nidera Handelscompagnie (C‑385/09) – The Court ruled that if the substantive requirements for VAT deduction are satisfied, tax authorities cannot impose additional formal conditions that could render the right to deduct ineffective.
- Kopalnia Odkrywkowa Polski Trawertyn (C‑280/10) – This judgment reiterates the necessity of holding an invoice in accordance with the requirements of the VAT Directive to exercise the right to deduct VAT. However, it also indicates that failure to meet some formal conditions should not preclude deduction if the substantive requirements are satisfied.
- Salomie and Oltean (C‑183/14) – This case is referenced concerning the principle that tax authorities must consider all relevant information when determining the validity of a VAT deduction claim, not just the invoice itself.
Note: To avoid disputes with the tax authorities and delays in obtaining a recovery of input VAT it is still important to ensure that the invoices, both received and issued, are in compliance with legislative and regulatory requirements, including a clear description of the goods or services supplied.
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Specific country measures as result of the ECJ case
- Marosa – Belgium adopts ECJ’s position on incomplete invoices
- Netherlands – Update decree on administrative and invoicing obligations
See also
- Flashback on ECJ/CJEU cases: Right to deduct VAT in case of missing invoice requirements – Substance over Form
- KMLZ – ECJ: Invoices not mandatory for input VAT deduction
