CJEU: Is it necessary to pay VAT stated in tax document?
The Court of Justice of the European Union has refuted the Austrian court's belief that any person who indicates tax on a tax document is liable to pay that tax. If the service recipients are only end costumers not entitled to deduct VAT, incorrectly invoiced VAT does not have to be paid.
An Austrian company was operating an indoor playground in 2019. Throughout the year, it incorrectly charged end customers the standard VAT rate of 20% while paying the tax to the tax authority. Finding that it had incorrectly applied the standard VAT rate, the company filed an additional tax return using a reduced rate of 13% and applied for a refund of the difference in the VAT rates.
The Austrian tax administration rejected the additional tax return claiming that the company was obliged to pay VAT equivalent to the amount it collected from customers. Moreover, the issued tax documents had not been corrected and therefore it was not possible to refund the overpaid VAT to the specific service recipients. According to the Austrian tax administration, if the incorrectly paid tax were to be refunded by the tax authority, the company would be unjustly enriched as its customers had borne the cost of the higher VAT rate.
The CJEU sided with the company
The Austrian court referred a question to the CJEU whether, in accordance with Article 203 of the VAT Directive, the tax document issuer is obliged to pay the VAT stated in the tax document even if the service recipients are end customers without the right to deduct VAT, i.e., in a situation where there is no risk of loss of tax revenue.
The CJEU ruled in favour of the company, stating that Article 203 of the VAT Directive must be interpreted as meaning that, in the absence of a risk of loss of tax revenue, the company is not liable to pay the part of the VAT erroneously invoiced. However, in practice, this conclusion is applicable only where the beneficiaries are end customers who cannot exercise the right to deduct input VAT.