ECJ C-835/18 Terracult – Judgment – Correction of invoices for purchases subject to reverse charge after the assessment became final

On 2 July 2020 the European Court of Justice gave its judgment in case C-835/18 (SC Terracult SRL). This case is about the denial of correction invoices after assessment has already been imposed.

Article in the EU VAT Directive

Articles 167, 168, 179, 180 and 182 of Directive 2006/112/EC (Right to deduct VAT)

Article 167
A right of deduction shall arise at the time the deductible tax becomes chargeable.

Article 168
In so far as the goods and services are used for the purposes of the taxed transactions of a taxable person, the taxable person shall be entitled, in the Member State in which he carries out these transactions, to deduct the following from the VAT which he is liable to pay:
(a) the VAT due or paid in that Member State in respect of supplies to him of goods or services, carried out or to be carried out by another taxable person;
(b) the VAT due in respect of transactions treated as supplies of goods or services pursuant to Article 18 (a)and Article 27;
(c) the VAT due in respect of intra-Community acquisitions of goods pursuant to Article 2(1)(b)(i);
(d) the VAT due on transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;
(e) the VAT due or paid in respect of the importation of goods into that Member State.

Article 179
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 180
Member States may authorise a taxable person to make a deduction which he has not made in accordance with Articles 178 and 179.

Article 182
Member States shall determine the conditions and detailed rules for applying Articles 180 and 181.

Facts

Donauland SRL, a commercial company incorporated under Romanian law, delivered rapeseed to Almos Alfons Mosel Handels GmbH (hereinafter “Almos”), a commercial company incorporated under German law. It considered the corresponding transactions to be intra-Community deliveries.

During an audit, Donauland could not provide sufficient evidence that the goods had been transported from Romania. The Romanian tax authorities thus raised an assessment and charged local VAT. Donauland did not contest this notice of assessment, which therefore became final.

Subsequently, Donauland made corrections and reclassified the intra-Community deliveries concerned, classifying them as local supplies subject to the normal VAT rate and issued corrective invoices to this end. These invoices indicated the cancellation of said intra-Community deliveries and their requalification. They mentioned their corrective nature and stated that their issue had taken place on the basis of the tax notice.

Having received the credit notes and new invoices, Almos informed Donauland that it had noted that the said corrective invoices included its German tax identification number and requested a correction of the same invoices containing its identification data in Romania. Almos also told Donauland that the rapeseed in question had not left Romanian territory and that the deliveries concerned should be subject to the reverse charge procedure for VAT.

Consequently, Donauland issued new corrective invoices, now applying the local reverse charge mechanism. Donauland reported the new invoices in its VAT Return, and in the same VAT Return it deducted the VAT charged on the first new corrective invoices.

The tax authorities denied this VAT deduction, claiming that the VAT became due based on the assessment that was raised after the VAT audit. The tax authority considered in particular that the reclassification of these rapeseed deliveries and their classification in the category of deliveries of goods subject to the reverse charge regime for VAT illegally cancelled the effects of the tax notice, as the latter had become final.

Questions

Having doubts as to the compatibility with Union law of the relevant national rules and their application by the national authorities, the Curtea de Apel Timișoara (Court of Appeal of Timișoara) decided to ask to the Court the following question:

Do the VAT Directive ¹ and the principles of fiscal neutrality, effectiveness and proportionality preclude, in circumstances such as those in the main proceedings, an administrative practice and/or an interpretation of provisions of national legislation which prevents the correction of certain invoices and, consequently, the entry of the corrected invoices in the VAT return for the period in which the correction was made, in respect of transactions carried out during a period which was the subject of a tax inspection, following which the tax authorities issued a tax assessment which has become final, when, after the issue of the tax assessment, additional data and information have been discovered which would entail the application of a different tax regime?

AG Opinion

– Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, and the principles of fiscal neutrality, effectiveness and proportionality, preclude a provision or practice of a Member State which does not allow the correction of invoices in respect of transactions carried out during a period which was the subject of a tax inspection, following which the tax authorities issued a tax assessment that has become final, where, after the issue of the tax assessment, additional information came to light which would give rise to the application of the reverse charge mechanism.

– A Member State can refuse the tax adjustment and the refund of the tax unduly paid by the supplier only where the tax authorities can, based on objective factors, establish to the requisite legal standard that the correction of the invoices triggering the application of the reverse charge mechanism was made in bad faith, constituted an abuse of rights, or was connected with a tax fraud of which the supplier was aware or should have been aware. It is for the referring court to ascertain whether that is the case in the main proceedings.

Decision

The provisions of Council Directive 2006/112/EC of 28 November 2006 on the common system for value added tax, as amended by Council Directive 2013/43/EU of 22 July 2013, and the principles of fiscal neutrality, effectiveness and proportionality must be interpreted as precluding national legislation or a national administrative practice preventing a taxable person that has carried out transactions which subsequently proved to be covered by the reverse charge mechanism for value added tax (VAT) from correcting the invoices relating to those transactions and relying on them by correcting an earlier tax return or submitting a new tax return taking account of the correction thus made, with a view to obtaining a refund of the VAT improperly invoiced and paid by that taxable person, on the ground that the period in respect of which those transactions were carried out had already been the subject of a tax inspection at the end of which the competent tax authority had issued a tax assessment which, not having been contested by that taxable person, had become final.

Personal comments/VATupdate

See our post about the AG’s opinion HERE. Other posts where we referred to this case can be found HERE.

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