Right to deduct VAT without meeting the required essentials of a tax document
In September, the Court of Justice of the EU (CJEU) ruled on case C-518/14 Senatex GmbH. In the case, the tax administrator challenged the entitlement to VAT deduction based on tax documents that did not contain the tax identification number (VAT No.) of the persons for whom they were intended. The tax documents, declared in VAT returns in 2008 to 2011, were only corrected (VAT No. added) by the supply recipient in the course of a tax inspection in 2013.
According to German legislation, correcting an invoice does not have a retrospective effect, and has an effect only once the corrected invoice is delivered to the person for whom it is intended. Thus, supply recipients may only exercise the right to deduct VAT once in possession of the corrected tax document containing the VAT No. The CJEU dealt with the issue whether this national legislation is compliant with the rules set by the EU VAT Directive.
The CJEU concluded that such an approach is not compliant with the directive. It ruled that the right to deduct VAT exercised based on a corrected invoice relates to the year when the invoice was originally issued and not to the year when the correction was made. Below we summarise the CJEU’s main arguments:
-
The EU VAT Directive provides for the possibility of correcting an invoice from which certain mandatory details have been omitted.
-
The right to deduct VAT is an integral part of the VAT scheme and in principle may not be limited. It is meant to relieve businesses entirely of the burden of the VAT due or paid in the course of all their economic activities.
-
The VAT neutrality principle requires the deduction of input VAT to be allowed if substantive requirements are satisfied, even if the taxable persons have failed to comply with some formal conditions.
-
Holding an invoice meeting all essentials of a tax document is a formal condition.
-
Member states have the power to lay down penalties for the failure to comply with the formal conditions for the exercise of the right to deduct VAT.
Thus, according to the CJEU, tax administrators should not deny the entitlement to VAT deduction based on invoices that do not meet all essentials of a tax document where such details are added subsequently. Despite this, we recommend paying proper attention to the obligatory details of a tax document.