ECJ C-640/23 (Greentech) – Judgment – VAT deductions denied if VAT is not due but taxpayers can claim refunds directly

On March 13, 2025, the ECJ issued its decision in the case C-640/23 (Greentech).

Context: Reference for a preliminary ruling — Common system of value added tax — Directive 2006/112/EC — Right to deduct value added tax (VAT) — Sale transaction reclassified, by the tax authorities, as a transfer of an undertaking outside the scope of VAT — Failure to correct the invoice within the limitation period — Inability to recover the VAT paid in respect of that transaction — Principles of effectiveness and fiscal neutrality — Refund of the tax”

Summary

Case Overview: The Court addressed a preliminary ruling regarding VAT deductions in a case involving Greentech SA, where the Romanian tax authorities reclassified a sale transaction as a transfer of an undertaking outside the scope of VAT, leading to complications in recovering VAT already paid.
Legal Framework: The case invoked Articles 2, 19, 168, and 203 of the VAT Directive (2006/112/EC), focusing on the principles of VAT neutrality, legal certainty, and the protection of legitimate expectations in relation to the right to deduct VAT.
Tax Inspection Findings: The Romanian tax authorities initially treated the transaction as subject to VAT, allowing Greentech to deduct the input VAT. However, upon reclassification, Greentech faced challenges in correcting invoices due to the expiration of the limitation period.
Court’s Interpretation: The Court ruled that while national legislation may not allow for the deduction of VAT on transactions reclassified as outside the scope of VAT, principles of neutrality and effectiveness necessitate that taxpayers can pursue refunds directly from tax authorities if recovering VAT from the seller is excessively difficult or impossible.
Final Ruling: The Court concluded that Articles 168 and 203 of the VAT Directive do not prevent national rules that deny VAT deductions for reclassified transactions but affirm that taxpayers must be able to claim refunds directly from tax authorities in such situations.

Articles in EU VAT Directive

Articles 2, 19, 168 and 203 of the EU VAT Directive 2006/112/EC.

Article 2
1. The following transactions shall be subject to VAT:
(a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such;
(b) the intra-Community acquisition of goods for consideration within the territory of a Member State by:
(i) a taxable person acting as such, or a non‐taxable legal person, where the vendor is a taxable person acting as such who is not eligible for the exemption for small enterprises provided for in Article 284 and who is not covered by Article 33 or 36;
(ii) in the case of new means of transport, a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT pursuant to Article 3(1), or any other non-taxable person;
(iii) in the case of products subject to excise duty, where the excise duty on the intra-Community acquisition is chargeable, pursuant to Directive 92/12/EEC, within the territory of the Member State, a taxable person, or a non-taxable legal person, whose other acquisitions are not subject to VAT pursuant to Article 3(1);
(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;
(d) the importation of goods.

Article 19
In the event of a transfer, whether for consideration or not or as a contribution to a company, of atotality of assets or part thereof, Member States may consider that no supply of goods has takenplace and that the person to whom the goods are transferred is to be treated as the successor to thetransferor.
Member States may, in cases where the recipient is not wholly liable to tax, take the measures necessary to prevent distortion of competition. They may also adopt any measures needed to prevent tax evasion or avoidance through the use of this Article.

Article 168
In so far as the goods and services are used for the purposes of the taxed transactions of a taxableperson, the taxable person shall be entitled, in the Member State in which he carries out thesetransactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services,carried out or to be carried out by another taxable person;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant toArticle 18(a) and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State.

Article 203
VAT shall be payable by any person who enters the VAT on an invoice.

Facts & background

Tax Audit Findings: Between November 2015 and July 2016, the Regional Directorate-General of Public Finances of Galați conducted a tax audit on Greentech SA, resulting in additional VAT liabilities of 4,388,720 RON. This was due to the reclassification of a transaction between Greentech and Greenfiber International SA (GFI) from a VAT-subject supply of goods to a non-VAT transfer of assets between related companies.
Appeal and Judicial Review: Greentech’s initial complaint against the tax liabilities was rejected by the Directorate-General for the Administration of Large-Scale Taxpayers (DGAMC). Greentech then appealed to the Court of Appeal in Ploiești, which partially upheld their appeal. However, this decision was contested by both the AJFP Vrancea and the DGAMC, leading to further judicial review by the High Court of Cassation and Justice (ÎCCJ).
Legal Precedents Cited: In its application for revision of the ÎCCJ’s decision, Greentech referenced the judgments in Tibor Farkas and PORR Építési, arguing that VAT deductions should be recognized even when transactions are later reclassified as non-VAT events, especially if recovering the VAT paid is extremely difficult due to legal limitations.
Principles of Fiscal Neutrality: Greentech argued that the tax authorities’ refusal to allow VAT deduction contradicts the principles of fiscal neutrality and legal certainty, as it effectively imposes a tax burden on businesses. They asserted that since the VAT was collected by the state and recovery was impossible due to the expiration of the limitation period, their right to deduct VAT should be honored.
Inconsistent Tax Treatment: The AJFP Vrancea contended that the nature of the transaction justified its classification as a non-taxable asset transfer. However, Greentech highlighted inconsistencies, noting that GFI had previously been audited and confirmed to have correctly charged VAT. This contradictory treatment raised concerns about the protection of legitimate expectations, suggesting that Greentech was unfairly deprived of its VAT deduction rights.

Questions

Do the principles of neutrality, legal certainty and protection of legitimate expectations, as laid down in Articles 2, 19 and 168 in conjunction with Article 203 of Directive [2006/112], preclude the right to deduct VAT paid on a sales transaction subsequently classified by the tax authorities as a business transfer falling outside the scope of VAT, where that VAT has already been collected in favor of the treasury and cannot be refunded under national law?

AG Opinion

None

Decision

Articles 168 and 203 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as well as the principles of the neutrality of value added tax (VAT) and effectiveness,

must be interpreted as not precluding a piece of national legislation or a national administrative practice which does not allow a taxable person to obtain the deduction of the input VAT on a transaction which, following a tax audit, has been reclassified by the tax authorities as a transaction not subject to VAT, even though it appears impossible or excessively difficult for that taxable person to obtain, from the seller, reimbursement of the VAT thus unduly paid. However, those principles require that, in such a situation, that taxable person be able to apply directly to the tax authorities for reimbursement.

Source

Curia

ECJ VAT Cases referred to

Tibor Farkas (C-564/15): Judgment delivered on 26 April 2017 (EU:C:2017:302). This case addressed the right to deduct VAT and established that taxpayers should not be deprived of this right when VAT is paid on a transaction that is later deemed not subject to VAT, particularly when recovering that VAT is impossible or excessively difficult.
PORR Építési (C-691/17): Judgment delivered on 11 April 2019 (EU:C:2019:327). This case emphasized the principles of fiscal neutrality and effectiveness. It clarified that if a taxpayer has unduly paid VAT on a transaction incorrectly classified under VAT rules, they should be able to seek reimbursement from tax authorities directly if recovering that VAT from the supplier is not feasible.
Agrargenossenschaft Neuzelle (C-545/11): As regards the principles of legal certainty and the protection of legitimate expectations, the referring court observes that it has been consistently held in the case-law of the Court that the possibility of relying on those principles extends to any economic operator to which an institution has given rise to justified hopes. Within the meaning of that case-law, in whatever form it is given, information which is precise, unconditional and consistent and comes from authorised and reliable sources constitutes assurances capable of giving rise to such hopes

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