EU General Court on right to deduct VAT one month earlier fundamentally changes current practice
The EU General Court has issued an important decision (T 689/24) on VAT deduction, which has a fundamental impact on the practice of taxable entities and the creation of national legislation. The court addressed the question of whether it is possible to claim a VAT deduction in the period in which the tax liability arose even if the invoice was received later but before the filing of a VAT return.
According to the General Court, the right to deduct VAT arises at the moment the tax liability arises, i.e., upon delivery of the goods or provision of the service. Possession of the invoice is only a formal condition for exercising the right, not for its actual origination. If the taxpayer has the invoice available when filing the return, national legislation should not prevent the VAT deduction from being claimed in the period in which the substantive conditions were met.
The decision criticises national rules that automatically postpone the possibility of claiming a VAT deduction to a later period solely because of the late receipt of an invoice. According to the court, such rules are contrary to the EU directive and the principles of neutrality and proportionality if they prevent a VAT deduction where the invoice is already available when the VAT return is being filed.
The General Court emphasised that member states may take measures to ensure the correct collection of tax and prevent tax evasion, but these measures must not systematically prevent VAT deductions where all the substantive conditions are met and the taxpayer already has the tax document (invoice) available at the time of filing the VAT return.
The practical implication of this decision is to strengthen the rights of taxpayers: they should be able to claim a VAT deduction in the period in which the tax liability arose if they have a tax document at their disposal when filing their tax return for that period.
Until now, it has been common practice in the Czech Republic to claim a VAT deduction only when the taxpayer has received the invoice, i.e., often one taxable period later than when the right to deduct originated. This ruling is therefore an important precedent for Czech and European tax practice.