• VAT Reimbursements
    Review Of The Case-Law Of The Court Of Justice Of The European Union

    By Ksenija Cipek

    15-05-2019

    I INTRODUCTION

    The Court of Justice of the European Union (CJEU) has consistently reinforced that a taxpayer’s right to deduct input VAT incurred is fundamental and that any conditions placed on it should not affect its efficacy and basic application (Judgment of 22 October 2015, Sveda, Case C-126/14 EU:C:2015:712; Judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, Case C-132/16 EU:C:2017:683; Judgment of 16 July 2015, Larentia + Minerva, Cases C-108/14 and C-109/14 EU:C:2015:496; Judgment of 21 March 2018, Volkswagen AG, Case C-533/16 EU:C:2018:204; and Judgment of 12 April 2018, Biosafe, Case C-8/17 EU:C:2018:249). Also, from the other judgements of the CJEU, mentioned in this text, the following is concluded:

    • Where a Member State has placed a time limit on the recovery of input VAT, the time limit should begin to run from the point at which the substantive and formal conditions for VAT recovery have been fulfilled. In practice, this is when a VAT invoice is issued to or received by the taxpayer
    • In cases where invoices have to be corrected, the time limit for recovery of VAT begins to run from the point at which the customer has received the correct VAT invoice, not when the original invoice was received
    • Member States must lay down reasonable time limits that do not make it impossible in practice or excessively difficult to exercise the rights conferred by EU law
    • Repayments should not be delayed by Member States for an unreasonable period of time
    • The period of time reasonable for the repayment of a refund may be extended in order to carry out a tax investigation, and the extended time will not be regarded as unreasonable provided the extension does not go beyond what is necessary to complete this investigation
    • Exposing taxpayers to financial risk in respect of repayments, for example by making repayments conditional on meeting certain requirements that would generate financial risk for taxpayers over and above the risks generated by the requirements of the baseline VAT system, is prohibited
    • Repayments should only be withheld by Member States for justifiable reasons, such as suspected fraud being investigated
    • Member States are not prohibited from adopting precautionary national measures to ensure the accuracy of VAT declared, but the measures should not place a disproportionately high burden on taxpayers
    • European Commission VAT refunds and reimbursements: A quantitative and qualitative study February 2019 | 7 Confirms the requirement for Member States to pay interest where a reimbursement is not paid within a reasonable period
    • Member States are not prevented from applying legislation which offsets a taxpayer’s other tax debts against a VAT reimbursement claim, provided the taxpayer is not deprived of the basic right to reimbursement and tax recovery does not become impossible
    • Emphasises the need for Member States’ tax authorities to pay interest for delayed repayments and prohibits the arbitrary reduction of interest
    • The CJEU ruling established that it is the responsibility of a Member State's national court to examine that criteria applied to the eligibility for a VAT reimbursement in the Member State are proportionate
    • VAT is deductible when the taxable person has the intention to carry out an activity that is eligible for a VAT reimbursement and has adequate proof for this. Judgment of 3 March 2005, Fini H, Case C-32/03 EU:C:2005:128 (Case C32/03 Fini H): VAT incurred for activities of the taxable person after the end of the activities remains deductible
    • Possibility to obtain a refund of VAT invoiced in error, subject to the condition that the invoice is corrected. The CJEU determined that a condition attached to a claim for reimbursement must not be impossible to satisfy and the principle of neutrality can be relied on
    • Reimbursement of excess VAT in the form of Government bonds is not compatible with the VAT system
    • VAT invoiced by a non-existent taxpayer should be deductible (for cases of fraud)
    • The taxpayer has a right to receive reimbursement of the tax paid in breach of EU law including interest payments. However, it is for Member States to set the conditions, in compliance with EU principles of equivalence and effectiveness.

    II CASE - LAW

    1) Judgment of 22 October 2015, Sveda, Case C-126/14 EU:C:2015:712

    Article 168 of Directive 2006/112 on the common system of value added tax must be interpreted as granting a taxable person the right to deduct the input value added tax paid for the acquisition or production of capital goods, for the purposes of a planned economic activity related to rural and recreational tourism, which are (i) directly intended for use by the public free of charge, and may (ii) enable taxed transactions to be carried out, provided that a direct and immediate link is established between the expenses associated with the input transactions and an output transaction or transactions giving rise to the right to deduct or with the taxable person’s economic activity as a whole, which is a matter for the national court to determine on the basis of objective evidence.

    In that respect, immediate use of capital goods free of charge does not affect the existence of the direct and immediate link, in so far as, first, the making available of the recreational path to the public is not covered by any exemption under Directive 2006/112 and, second, the expenditure incurred by the taxable person in creating that path can be linked to his economic activity, since that expenditure does not relate to activities that are outside the scope of value added tax.

    2) Judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, Case C-132/16 EU:C:2017:683

    Article 168(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that a taxable person has the right to deduct input value added tax in respect of a supply of services consisting of the construction or improvement of a property owned by a third party when that third party enjoys the results of those services free of charge and when those services are used both by the taxable person and by the third party in the context of their economic activity, in so far as those services do not exceed that which is necessary to allow that taxable person to carry out the taxable output transactions and where their cost is included in the price of those transactions.

    3) Judgment of 16 July 2015, Larentia + Minerva, Cases C-108/14 and C-109/14 EU:C:2015:496

    1. Article 17(2) and (5) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, as amended by Council Directive 2006/69/EC of 24 July 2006, must be interpreted as meaning that:
      • the expenditure connected with the acquisition of shareholdings in subsidiaries incurred by a holding company which involves itself in their management and which, on that basis, carries out an economic activity must be regarded as belonging to its general expenditure and the value added tax paid on that expenditure must, in principle, be deducted in full, unless certain output economic transactions are exempt from value added tax under Sixth Directive 77/388, as amended by Directive 2006/69, in which case the right to deduct should have effect only in accordance with the procedures laid down in Article 17(5) of that directive;
      • the expenditure connected with the acquisition of shareholdings in subsidiaries incurred by a holding company which involves itself in the management only of some of those subsidiaries and which, with regard to the others, does not, by contrast, carry out an economic activity must be regarded as only partially belonging to its general expenditure, so that the value added tax paid on that expenditure may be deducted only in proportion to that which is inherent to the economic activity, according to the criteria for apportioning defined by the Member States, which when exercising that power, must have regard to the aims and broad logic of the Sixth Directive and, on that basis, provide for a method of calculation which objectively reflects the part of the input expenditure actually to be attributed, respectively, to economic and to non-economic activity, which it is for the national courts to establish.
    2. The second subparagraph of Article 4(4) of Sixth Directive 77/388, as amended by Directive 2006/69, must be interpreted as precluding national legislation which reserves the right to form a value added tax group, as provided for in those provisions, solely to entities with legal personality and linked to the controlling company of that group in a relationship of subordination, except where those two requirements constitute measures which are appropriate and necessary in order to achieve the objectives seeking to prevent abusive practices or behaviour or to combat tax evasion or tax avoidance, which it is for the referring court to determine.
    3. Article 4(4) of Sixth Directive 77/388, as amended by Directive 2006/69, may not be considered to have direct effect allowing taxable persons to claim the benefit thereof against their Member State in the event that that State’s legislation is not compatible with that provision and cannot be interpreted in a way compatible with it.

    4) Judgment of 21 March 2018, Volkswagen AG, Case C-533/16 EU:C:2018:204

    EU law must be interpreted as precluding legislation of a Member State under which, in circumstances such as those at issue in the main proceedings in which the value added tax (VAT) was charged to the taxable person and paid by it several years after delivery of the goods in question, the benefit of the right to claim a refund of VAT is denied on the grounds that the limitation period provided for by that legislation for the exercise of that right began to run from the date of supply and expired before the application for a refund was submitted.

    5) Judgment of 12 April 2018, Biosafe, Case C-8/17 EU:C:2018:249

    Articles 63, 167, 168, 178 to 180, 182 and 219 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, and also the principle of fiscal neutrality, must be interpreted as precluding legislation of a Member State pursuant to which, in circumstances such as those at issue in the main proceedings in which, following a tax adjustment, additional value added tax (VAT) was paid to the State and was the subject of documents rectifying the initial invoices several years after the supply of the goods in question, the right to deduct VAT is to be refused on the ground that the period laid down by that legislation for the exercise of that right started to run from the date of issue of those initial invoices and had expired.

    6) Judgment of 21 January 2010, Alstom Power Hydro, Case C-472/08 EU:C:2010:32

    Article 18(4) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment is to be interpreted as not precluding legislation of a Member State, such as that at issue in the main proceedings, which lays down a limitation period of three years in which to make an application for the refund of excess value added tax collected by, though not due to, the tax authority.

    7) Judgment of 12 May 2011, Enel Maritsa Iztok 3, Case C-107/10 EU:C:2011:298

    1. Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2006/138/EC of 19 December 2006, in conjunction with the principle of the protection of legitimate expectations, is to be interpreted as precluding national legislation which provides, with retrospective effect, for the extension of the period within which excess value added tax is to be refunded, in so far as that legislation deprives the taxable person of the right enjoyed before the entry into force of the legislation to obtain default interest on the sum to be refunded.
    2. Article 183 of Directive 2006/112, as amended by Directive 2006/138, in the light of the principle of fiscal neutrality, is to be interpreted as precluding national legislation under which the normal period for refunding excess valued added tax, at the expiry of which default interest is payable on the sum to be refunded, is extended where a tax investigation is instigated, the effect of the extension being that such interest is payable only from the date on which the investigation is completed, the excess having already been carried forward during the three tax periods following that in which it arose. On the other hand, the fact that the normal period is 45 days is not contrary to that provision.
    3. Article 183 of the Directive 2006/112, as amended by Directive 2006/138, is to be interpreted as not precluding the refund of excess valued added tax by way of set-off.

    8) Judgment of 6 July 2017, Glencore Grain Hungary, Case C-254/16 EU:C:2017:522

    EU law must be interpreted as precluding national legislation, such as that at issue in the main proceedings, under which, where a tax investigation procedure is initiated by a tax authority and where a taxable person is fined for failure to cooperate, the date of the refund of overpaid value added tax may be delayed until the formal report on that investigation is delivered to the taxable person and the payment of default interest may be refused, even where the duration of the tax investigation procedure is excessive and cannot be attributed entirely to the conduct of the taxable person.

    Where the refund of the overpaid VAT to the taxable person is not made within a reasonable period, the principle of fiscal neutrality of the VAT system requires that the financial losses incurred by the taxable person owing to the unavailability of the sums of money at issue should be compensated through the payment of default interest (judgment of 24 October 2013, Rafinăria Steaua Română, C 431/12, EU:C:2013:686, paragraph 23).

    Since the referring court raises, in that regard, the issue of the implications of the conduct of a taxable person whose negligence during a tax investigation procedure was penalised by several fines, it should be noted, as the Hungarian Government claims, that it cannot be accepted that a taxable person who, by refusing to cooperate with a tax authority and by thus impeding the conduct of the investigation procedure, caused the delay in the refund of overpaid VAT, may claim default interest for that delay.

    Nevertheless, national legislation or practices according to which the mere fact that a taxable person has been fined due to his negligence during a tax investigation to which he was subject allows the tax authority to extend that investigation over a period not justified by that negligence, without having to pay him default interest, cannot be considered to be compatible with the requirements arising from the principle of fiscal neutrality.

    Accordingly, in a situation such as that at issue in the main proceedings, for the purposes of determining whether default interest is due and, where relevant, the point in time from which the right to such interest arises, the proportion of the duration of the tax investigation procedure which can be attributed to the conduct of the taxable person must be ascertained.

    9) Judgment of 28 July 2011, Commission v Republic of Hungary, Case C-274/10 EU:C:2011:530

    Declares that the Republic of Hungary,

    • by requiring taxable persons whose tax declaration for a given tax period records an ‘excess’ within the meaning of Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax to carry forward that excess or a part of it to the following tax period where the taxable person has not paid the supplier the full amount for the purchase in question, and
    • because, as a result of that requirement, certain taxable persons whose tax declarations regularly record such an ‘excess’ may be required more than once to carry forward the excess to the following tax period,

    has failed to fulfil its obligations under that directive.

    10) Judgment of 18 October 2012, Mednis SIA, Case C-525/11 EU:C:2012:652

    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 authorising the tax authority of a Member State to defer, without undertaking a specific analysis and solely on the basis of an arithmetical calculation, the refund of part of the excess VAT which has arisen during a one-month tax period, pending the examination by that authority of the taxable person’s annual tax return.

    11) Judgment of 10 July 2008, Alicja Sosnowska, Case C-25/07 EU:C:2008:395

    1. Article 18(4) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 2005/92/EC of 2 December 2005, and the principle of proportionality preclude national legislation, such as that at issue in the main proceedings, which, in order to allow investigations required to prevent tax evasion and avoidance, extends from 60 to 180 days, as from the date of submission of the taxable person’s VAT return, the period available to the national tax office for repayment of excess VAT to a category of taxable persons, unless those persons lodge a security deposit to a value of PLN 250 000.
    2. Provisions such as those at issue in the main proceedings do not constitute ‘special measures for derogation’ intended to prevent certain types of tax evasion or avoidance within the meaning of Article 27(1) of the Sixth Directive 77/388, as amended by Directive 2005/92.

    12) Judgment of 24 October 2013, Rafinaria Steaua Romana SA, Case C-431/12 EU:C:2013:686

    Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as precluding a situation in which a taxable person, having made a claim for refund of excess input value added tax over the value added tax which it is liable to pay, cannot obtain from the tax authorities of a Member State default interest on a refund made late by those authorities in respect of a period during which administrative measures precluding the refund, which were subsequently annulled by a court ruling, were in force.

    13) Judgment of 16 March 2017, Bimotor SpA, Case C-211/16 EU:C:2017:221

    The first paragraph of Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2010/45/EU of 13 July 2010, must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, which limits to a set maximum amount the compensation of certain tax debts by value added tax credits, for each taxation period, to the extent that national law provides in any event the possibility for the taxable person to recover the full value added tax credit within a reasonable period.

    14) Judgment of 28 February 2018, Nidera B.V., Case C-387/16 EU:C:2018:121

    Article 183 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in the light of the principle of fiscal neutrality, must be interpreted as precluding a reduction in the amount of interest normally payable under national law on overpaid value added tax which was not refunded in due time for reasons connected to circumstances not attributable to the taxable person, such as the high amount of that interest when compared with the amount of the overpaid value added tax, the period of time during which the overpayment was not refunded and the underlying reasons for this, as well as the losses actually incurred by the taxable person.

    15) Judgment of 18 December 1997, Garage Molenheide BVBA, Cases C-286/94, C340/95, C-401/95, C-47/96 EU:C:1997:623

    1. Article 18(4) of the Sixth Council Directive 77/388/EEC of 17 May 1977 onthe harmonization of the laws of the Member States relating to turnovertaxes Common system of value added tax: uniform basis of assessment does not in principle preclude measures of the kind at issue in the mainproceedings.
    2. However, the principle of proportionality is applicable to national measureswhich, like those at issue in the main proceedings, are adopted by aMember State in the exercise of its powers relating to VAT, in that, if theywent further than was necessary in order to attain their objective, theywould undermine the principles of the common system of VAT, inparticular the conditions governing deductions, which are an essentialcomponent of that system.

    It is for the national court to examine whether or not the measures inquestion and the manner in which they are applied by the competentadministrative authority are proportionate. In the context of thatexamination, if the national provisions or a particular construction of themwould constitute a bar to effective judicial review, in particular review ofthe urgency and necessity of retaining the refundable VAT balance, andwould prevent the taxable person from applying to a court for replacementof the retention by another guarantee sufficient to protect the interests ofthe Treasury but less onerous for the taxable person, or would prevent anorder from being made, at any stage of the procedure, for the total orpartial lifting of the retention, the national court should disapply thoseprovisions or refrain from placing such a construction on them. Moreover,in the event of the retention being lifted, calculation of the interest payableby the Treasury which did not take as its starting point the date on whichthe VAT balance in question would have had to be repaid in the normalcourse of events would be contrary to the principle of proportionality.

    16) Judgment of 14 February 1985, Rompelman, Case C-268/83 EU:C:1985:74

    The acquisition of a right to the future transfer of property rights in part of a building yet to be constructed with a view to letting such premises in due course may be regarded as an economic activity within the meaning of article 4 ( 1 ) of the Sixth Directive. However , that provision does not preclude the tax administration from requiring the declared intention to be supported by objective evidence such as proof that the premises which it is proposed to construct are specifically suited to commercial exploitation.

    17) Judgment of 11 April 2013, Rusedespred, Case C-138/12 EU:C:2013:233

    1. The principle of the neutrality of value added tax, as given specific definition by the case-law relating to Article 203 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, must be interpreted as precluding a tax authority from refusing, on the basis of a provision of national law intended to transpose that article, the supplier of an exempt supply the refund of value added tax invoiced in error to a customer on the ground that the supplier had not corrected the erroneous invoice, in circumstances where that authority had definitively refused the customer the right to deduct that value added tax and such definitive refusal results in the system for correction provided for under national law no longer being applicable.
    2. The principle of the neutrality of value added tax, as given specific definition by the case-law relating to Article 203 of Directive 2006/112, may be relied on by a taxable person in order to contest a provision of national law that makes the refund of value added tax invoiced in error conditional on the correction of the incorrect invoice, in circumstances where the right to deduct that value added tax has definitively been refused and such definitive refusal results in the system for correction provided for under national law no longer being applicable.

    18) Judgment of 25 October 2001, Commission vs Italy, Case C-78/00 EU:C:2001:579

    Declares that by providing that the category of taxable persons whose tax position for 1992 is in credit be belatedly issued with Government bonds instead of refunds of the excess value added tax the Italian Republic has failed to fulfil its obligations under Articles 17 and 18 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment, as amended by Council Directive 95/7/EC of 10 April 1995 amending Directive 77/388/EEC and introducing new simplification measures with regard to value added tax - scope of certain exemptions and practical arrangements for implementing them.

    19) Judgment of 22 October 2015, PPUH Stehcemp, Case C-277/14 EU:C:2015:719

    The provisions of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, as amended by Council Directive 2002/38/EC of 7 May 2002, must be interpreted as precluding national legislation, such as that at issue in the main proceedings, by which a taxable person is not allowed to deduct the value added tax due or paid in respect of goods that were delivered to him on the grounds that the invoice was issued by a trader which is to be regarded, in the light of the criteria provided by that legislation, as a non-existent trader, and that it is impossible to determine the identity of the actual supplier of the goods, except where it is established, on the basis of objective factors and without the taxable person being required to carry out checks which are not his responsibility, that that taxable person knew, or should have known, that that transaction was connected with value-added-tax fraud, this being a matter for the referring court to determine.

    20) Judgment of 19 July 2012, Littlewoods Retail, Case C-591/10 EU:C:2012:478

    European Union law must be interpreted as requiring that a taxable person who has overpaid value added tax which was collected by the Member State contrary to the requirements of European Union legislation on value added tax has a right to reimbursement of the tax collected in breach of European Union law and to the payment of interest on the amount of the latter. It is for national law to determine, in compliance with the principles of effectiveness and equivalence, whether the principal sum must bear ‘simple interest’, ‘compound interest’ or another type of interest.

    References:

    1. http://curia.europa.eu/juris/recherche.jsf?cid=3588702

    2. https://ec.europa.eu/taxation_customs/news/vat-3_en

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Ksenija Cipek

Ksenija Cipek is based in Zagreb, Croatia and she is a lecturer at the local University of Law and a Member of European Law Institute. Ksenija has over 20 years experience working at the Ministry of Finance and the Tax Administration. She is a highly respected and recognised tax expert who has been heavily involved in lawmaking. Ksenija is also an author and books writer.

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