On April 11, 2018, the ECJ issues its decision in the case C-532/16 (SEB bankas)
Context: Reference for a preliminary ruling — Common system of value added tax (VAT) — Limitation of the right to deduct input tax — Adjustment of the deduction of input tax paid — Supply of land — Mischaracterisation as ‘taxable activity’ — Indication of VAT on the initial invoice — Amendment of that indication by the supplier
Article in the EU VAT Directive
Articles 12(1)(b), 179, 184 to 186 and 250 of the EU VAT Directive 2006/112/EC
Article 12 (Taxable transaction)
1. Member States may regard as a taxable person anyone who carries out, on an occasional basis, a transaction relating to the activities referred to in the second subparagraph of Article 9(1) and in particular one of the following transactions:
(a) the supply, before first occupation, of a building or parts of a building and of the land on which the building stands;
(b) the supply of building land.
Article 179 (Right to deduct VAT)
The taxable person shall make the deduction by subtracting from the total amount of VAT due for a given tax period the total amount of VAT in respect of which, during the same period, the right of deduction has arisen and is exercised in accordance with Article 178. However, Member States may require that taxable persons who carry out occasional transactions, as defined in Article 12, exercise their right of deduction only at the time of supply.
Article 184
The initial deduction shall be adjusted where it is higher or lower than that to which the taxable person was entitled.
Article 185
1. Adjustment shall, in particular, be made where, after the VAT return is made, some change occurs in the factors used to determine the amount to be deducted, for example where purchases are cancelled or price reductions are obtained.
2. By way of derogation from paragraph 1, no adjustment shall be made in the case of transactions remaining totally or partially unpaid or in the case of destruction, loss or theft of property duly proved or confirmed, or in the case of goods reserved for the purpose of making gifts of small value or of giving samples, as referred to in Article 16. However, in the case of transactions remaining totally or partially unpaid or in the case of theft, Member States may require adjustment to be made.
Article 186
Member States shall lay down the detailed rules for applying Articles 184 and 185.
Article 250 (returns)
1. Every taxable person shall submit a VAT return setting out all the information needed to calculate the tax that has become chargeable and the deductions to be made including, in so far as is necessary for the establishment of the basis of assessment, the total value of the transactions relating to such tax and deductions and the value of any exempt transactions.
2. Member States shall allow, and may require, the VAT return referred to in paragraph 1 to be submitted by electronic means, in accordance with conditions which they lay down.
Facts
- SEB Lizingas UAB, whose successor in law is SEB bankas, with which it merged in November 2013, purchased six plots of land in March 2007 from VKK Investicija for the sum of 4 800 000 Lithuanian litas (LTL), being approximately EUR 1 387 200, inclusive of VAT. At the time of the transaction, the parties regarded it as a supply of building land, which is subject to VAT. Consequently, SEB Lizingas paid the amount of VAT due on that transaction and deducted it from the VAT payable in respect of March 2007.
- At the same time, SEB Lizingas handed the plots of land over to VKK Investicija under the terms of a leasing contract. However, the latter company having failed to fulfil its obligations under the leasing contract, SEB Lizingas unilaterally terminated that contract in March 2009.
- On 14 April 2010, VKK Investicija issued a credit note in the name of the applicant, which stated that, no VAT being due, the price inclusive of VAT shown on the initial invoice was the price excluding VAT, and issued a new invoice which stated that the price to be paid was LTL 4 800 000, with no mention of VAT. VKK Investicija considered that the sales transaction at issue ultimately was not a supply of building land and was therefore not subject to VAT. It thus submitted a revised VAT return for March 2007.
- SEB Lizingas, which had refused to recognise the credit note and the new invoice and adjust the deduction made in March 2007 in line with those documents, was subject to a tax inspection in 2012. Considering that the supply of land at issue was in fact an exempt transaction, the tax authority ordered, by a decision of 16 May 2014, the payment of the unduly deducted VAT plus default interest and imposed a fine on SEB bankas.
- SEB bankas contested that decision before the Mokestinių ginčų komisija prie Lietuvos Respublikos Vyriausybės (Commission on Tax Disputes under the Government of the Republic of Lithuania), which partially annulled the decision in so far as it concerned the VAT due and related amounts. The tax authority brought proceedings before the Vilniaus apygardos administracinis teismas (Vilnius Regional Administrative Court, Lithuania) in which it sought to have that part of the decision of the Commission on Tax Disputes set aside. The court dismissed the action. The tax authority appealed against the judgment delivered by the Vilniaus apygardos administracinis teismas (Vilnius Regional Administrative Court) before the Lietuvos vyriausiasis administracinis teismas (Supreme Administrative Court of Lithuania).
Questions
Must Articles 184 to 186 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax be interpreted as meaning that, in circumstances such as those at issue in the main proceedings, the deduction adjustment mechanism provided for in Directive 2006/112 is not applicable in cases where an initial deduction of value added tax (VAT) could not have been made at all because the transaction in question was an exempt transaction relating to the supply of land?
Is the answer to the first question affected by the fact that (1) the VAT on the purchase of the plots of land was initially deducted because of the tax administration’s practice under which the supply in question was incorrectly regarded as being a supply of building land subject to VAT, as provided for in Article 12(1)(b) of Directive 2006/112, and/or (2) after the initial deduction made by the purchaser, the supplier of the land issued a VAT credit note to the purchaser adjusting the amounts of VAT indicated (specified) on the initial invoice?
If the answer to the first question is in the affirmative, are, in circumstances such as those at issue in the main proceedings, Articles 184 and/or 185 of Directive 2006/112 to be interpreted as meaning that, in a case where an initial deduction could not have been made at all because the transaction in question was exempt from VAT, the taxable person’s obligation to adjust that deduction must be considered to have arisen immediately or only when it became known that the initial deduction could not have been made?
If the answer to the first question is in the affirmative, is, in circumstances such as those at issue in the main proceedings, Directive 2006/112, and in particular Articles 179, 184 to 186 and 250 thereof, to be interpreted as meaning that the adjusted amounts of deductible input VAT must be deducted in the tax period in which the taxable person’s obligation and/or right to adjust the initial deduction arose?
AG Opinion
- Articles 184 to 186 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax shall be interpreted as meaning that the adjustment mechanism provided for in those provisions does not apply in the situation, such as the one in the main proceedings, where an initial deduction of value added tax could not have been made at all because the transaction at issue was exempt from value added tax. However, the principle of fiscal neutrality requires that the Member State recover the amount corresponding to a value added tax deduction unduly granted, pursuant to the applicable provisions of national law.
- When the competent authorities correct tax obligations of a taxable person, following a (re)classification of a supply for value added tax purposes, such as the supply of land in the main proceedings, these authorities shall strike an appropriate balance between the obligations to ensure fiscal neutrality and the uniform application of the law and that taxable person’s legitimate expectations.
Decision
1. Article 184 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the obligation to adjust undue value added tax (VAT) deductions set down in that article also applies to cases where the initial deduction could not be made lawfully because the transaction giving rise to that deduction was exempt from VAT. By contrast, Articles 187 to 189 of Directive 2006/112 must be interpreted as meaning that the mechanism for the adjustment of undue VAT deductions provided for in those articles is not applicable in such cases, in particular in a situation such as that at issue in the main proceedings, where the initial VAT deduction was unjustified as it concerned a VAT-exempt transaction relating to the supply of land.
2. Article 186 of Directive 2006/112 must be interpreted as meaning that, in cases where the initial deduction of VAT could not be made lawfully, it is for the Member States to determine the date on which the obligation to adjust the undue VAT deduction arises and the time period for which that adjustment must be made, in accordance with the principles of EU law, in particular the principles of legal certainty and legitimate expectations. It is for the national court to determine whether, in cases such as that at issue in the main proceedings, those principles have been respected.
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