On 6 December 2018 the European Court of Justice gave its judgment in case C-672/17 (Tratave — Tratamento de Águas Residuais do Ave SA) regarding the question if an adjustment of VAT must be made in case of non-payment.
Context: Reference for a preliminary ruling — Value added tax (VAT) — Taxable amount — Reduction — Principle of fiscal neutrality
Article in the EU VAT Directive
ARticles 90 and 273 of the EU VAT Directive 2006/12/EC
Article 90 (Taxable Amount)
1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.
2. In the case of total or partial non-payment, Member States may derogate from paragraph 1.
Article 273 (Accounting – Miscellaneous provisions)
Member States may impose other obligations which they deem necessary to ensure the correct collection of VAT and to prevent evasion, subject to the equirement of equal treatment as between domestic transactions and transactions carried out between Member States by taxable persons and provided that such obligations do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers.
The option under the first paragraph may not be relied upon in order to impose additional invoicing obligations over and above those laid down in Chapter 3.
Facts (simplified):
Tratave is a company established in Serzedelo (Portugal), which operates and manages municipal public services for the drainage, purification and disposal of waste water in the integrated clean-up system for the Vale do Ave (Portugal). Tratave is subject to VAT.
In its VAT return, Tratave decreased its tax base and adjusted the amount of VAT previously paid and passed on to eight customers (recipients of its services), which had been declared insolvent by judgments which had become final. In other words: the customers went bankrupt, and did not and could no longer pay the invoices issued to them by Tratave.
Following this statement, Tratave was the subject of a tax inspection in which the Tax and Customs Authority informed it that this correction was vitiated by illegality on the ground that certificates relating to the insolvency judgments which had become final had not been provided, and that the company had not fulfilled the requirement to give prior notice to its insolvent debtors of its intention to cancel VAT, in order for them to correct the deduction of VAT which they might have made.
Tratave received a VAT assessment for wrongly adjusting the tax base, which it paid.
Subsequently, Tratave informed its debtors of its intention to cancel the VAT amounts relating to outstanding claims, and after that, appealed against the VAT assessment, arguing that it now fulfilled the requirements.
The Portuguese Court was not certain if the Portuguese settlement procedures, provided for by national law, were in conformity with the principle of fiscal neutrality and the VAT Directive. It therefore asked the following questions to the European Court of Justice:
Question
1. Do the principle of neutrality and Article 90 of Council Directive 2006/112/EC 1 of 28 November 2006 preclude national legislation such as Article 78(11) of the Código do Imposto sobre o Valor Acrescentado (Value Added Tax Code), which is interpreted to the effect that the tax may not be adjusted, in the event of non-payment, before the purchaser of the goods or service, being a taxable person, has been notified of the cancellation of the tax for the purposes of rectifying the deduction initially made?
2. If so, do the principle of neutrality and Article 90 of Directive 2006/112/EC preclude national legislation such as Article 78(11) of the Código do Imposto sobre o Valor Acrescentado, which is interpreted to the effect that the tax may not be adjusted, in the event of non-payment, where the purchaser of the goods or service, being a taxable person, was not notified of the cancellation of the tax within the time-limit for deducting the tax laid down in Article 98(2) of the Value Added Tax Code?
AG Opinion
None
Judgment
The principle of neutrality as well as Articles 90 and 273 of the VAT Directive tax must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, which provides that the reduction of the taxable amount for value added tax (VAT), in the event of non-payment, cannot be made by the taxable person until it has given prior notice of its intention to cancel all or part of the VAT to the purchaser of goods or services, if that purchaser is a taxable person, for the purposes of correcting the deduction of VAT that the latter has made.
Source
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