Case law
10 May 2018

CJEU: deduction of VAT on input must be allowed upon assessment of additional VAT on output

Recently, the Court of Justice of the European Union (CJEU) dealt with two interesting and in principle similar cases that both involve the rectification of incorrectly declared supply in terms of VAT. Whereas national courts denied the customer’s entitlement to deduct the additionally assessed VAT, the CJEU issued a decision in the customers’ favour. The important fact was that neither case involved fraudulent behaviour. In the court’s opinion, it is actually impossible not to be able to claim VAT deduction if output VAT is additionally assessed.

Tomáš Havel
Petra Němcová
Veronika Červenková

In the first case in question (C-533/16), moulds were being delivered within the territory of Slovakia without applying local VAT under the assumption that this involved financial settlement. Subsequently, the supplier rectified its mistake and paid VAT on output. The customer, Volkswagen AG, then applied for a refund of the additionally-assessed tax. The tax administration agreed only partially, claiming that the time limit for exercising the right to a refund had started to run from the date of supply of the moulds and had therefore expired in respect of certain supplies.

A similar situation was discussed in the Biosafe case (C-8/17). Instead of a basic 21% VAT rate, a reduced 5% VAT rate was incorrectly applied on supplies. The tax authority assessed additional VAT after an inspection. Biosafe as the supplier asked its customer for reimbursement of the additionally-assessed tax, but the customer refused, claiming that it could no longer deduct the tax since the time limit for exercising the right of deduction under the Portuguese VAT law had already expired.

In short, in both cases the CJEU made a stand for the taxpayers and held that national legislations preventing to deduct VAT on input (or to refund VAT in the Volkswagen case) on the grounds of an expired time limit that had started to run the moment the goods in question had been delivered, were at variance with the basic principles of the EU’s VAT legislation. 

The important aspect was the absence of tax evasion. According to the CJEU, in the Volkswagen case the company could not objectively exercise its right to a VAT refund before the tax was rectified. It did not have invoices at its disposal and therefore could not have known that VAT was payable.

Similarly, in the Biosafe case, the CJEU concluded that, only after rectifying the tax, the factual and formal requirements in terms of the substantive law were met and could give rise to the entitlement to deduct VAT. Since the customer did not act without due care and no fraudulent agreements were entered into, the limitation period could not be applied against exercising the right to deduct VAT. The time period started to run from the date the original invoices had been issued and for some supplies expired before the tax was corrected. 

The above court decisions may significantly affect similar cases in which, without acting fraudulently, tax is incorrectly paid and subsequently rectified.

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