SAC on obligation to pay VAT stated in invoice
The Supreme Administrative Court (SAC) considered whether VAT stated in an invoice must be paid even where the invoiced supply is fictitious. It confirmed that the decisive factor is not the mere statement of VAT in the invoice but the existence of a genuine risk of loss of tax revenue.
The case concerned a company that claimed to purchase solar panels and subsequently supply and install them for end customers. The company claimed input VAT deductions on purchases at the standard rate, while taxing its output supplies at the reduced rate, resulting in an excess VAT deduction. During a tax inspection, the tax authority found that the supplies to end customers had not in fact taken place.
The SAC considered whether the company was required to pay the VAT stated in the invoices it had issued even though the invoiced supplies were fictitious. Drawing on the case law of the Court of Justice of the European Union and its own previous decisions, it emphasised that the purpose of the obligation to pay VAT stated in an invoice is to protect the state budget against the risk of loss of revenue. Such a loss may arise if the recipient of the invoice improperly claims an input VAT deduction. Where no such risk objectively exists—typically because the recipient is a final consumer with no right to deduct input VAT—the VAT should not be assessed or additionally assessed.
The SAC confirmed that merely stating VAT in an invoice does not automatically give rise to an obligation to pay that VAT irrespective of whether the supply actually took place. The decisive consideration is always whether the invoice recipient could have claimed an input VAT deduction and whether there was therefore a genuine risk of loss of tax revenue to the state budget.
In the case at hand, the end customer could not in practice claim an input VAT deduction and the supplier’s manifestly fraudulent conduct did not actually create an obligation to pay VAT stated in the fictitious invoice. According to the SAC, payment of VAT stated in an invoice should be neither a standard tax liability nor a punitive measure for fraudulent or improper conduct. In view of the principle of VAT neutrality, the court further noted that assessing or additionally assessing the VAT would breach that principle, as it would increase state revenue even though no supply had taken place and there was no risk of tax revenue being lost.
The SAC’s conclusions may therefore be relevant not only to fictitious supplies but also to other situations in which the VAT stated in an invoice is incorrect.