On 8 May 2019 the European Court of Justice gave its judgment in case C-127/18 (A-PACK CZ sro). The case deals with the VAT treatment of total or partial non-payment, by the debtor, of a sum due to the taxable person in respect of a transaction subject to VAT.
A-PACK CZ is a Czech company and a taxable person for the purposes of VAT. One of its customers, Delpharmea Nutraceuticals, a.s., was the subject of insolvency proceedings.
Assuming that it would no receive the money from its debtor, A-PACK CZ requested the reimbursement of a correction of the amount of VAT in respect of unpaid debts owed by Delpharmea Nutraceuticals.
The Czech tax authorities denied (partly) the VAT correction, on the ground that the Czech VAT Law does not allow a correction of the amount of the tax if the debtor has ceased to be a taxable person, which was the case as regards Delpharmea Nutraceuticals.
The referring court considers that the condition that the debtor must not have ceased to be a taxable person, may indeed be contrary to Article 90 of Directive 2006/112, since it may render impossible the adjustment of the taxable amount of the creditor taxable person, without this being justified by the uncertainty as to the definitive nature of the non-payment.
Therefore, the Czech Supreme Administrative Court asked the following questions to the ECJ for a preliminary ruling:
‘(1) Can Article 90(2) of the VAT Directive be interpreted, having regard to the principle of fiscal neutrality and the principle of proportionality, in such a way that it allows Member States by way of derogation to lay down conditions which for certain cases exclude a reduction of the taxable amount in the event of total or partial non-payment of the price?
(2) If the answer to Question 1 is in the affirmative, is national legislation contrary to the purpose of Article 90 of the VAT Directive if it does not allow payers of VAT to make a correction to the amount of tax where tax became chargeable on a taxable supply to another taxpayer who paid for it only in part or not at all, and who subsequently ceased to be a VAT payer?’
The European Court of Justice rules as follows:
“Article 90 of the VAT Directive must be interpreted as precluding national legislation, such as that at issue in the main proceedings, which provides that a taxable person cannot correct the value added tax (VAT) taxable amount, in the case of total or partial non-payment, by its debtor, of a sum due in respect of a transaction subject to that tax, if the debtor is no longer a taxable person for the purposes of VAT.”