In this case, the European Court of Justice rules that an a business cannot recover VAT on an incomplete invoice.
- Member States may, in their national legislation, refuse the right to deduct value added tax to taxable persons who are recipients of services and are in possession of invoices which are incomplete, even if those invoices are supplemented by the provision of information seeking to prove the occurrence, nature and amount of the transactions invoiced after such a refusal decision was adopted.
- The principle of fiscal neutrality does not preclude the tax authority from refusing to refund the value added tax paid by a company providing services, in the case where the exercise of the right to deduct the value added tax levied on those services has been denied to the companies receiving those services by reason of the irregularities confirmed in the invoices issued by that service-providing company.
Petroma Transports SA was the part of the Martens group in terms of staff and provided numerous services to other companies within that group. Contracts were concluded to regulate the use of such staff in the context of the intra‑group services. Those contracts provided for remuneration for those services on the basis of hours worked by staff.
The tax authorities denied the deduction of input VAT mentioned on the intercompany invoices, the main reason being that those invoices were incomplete and could not be shown to correspond to actual services. Most of those invoices included an overall amount, with no indication of the unit price or the number of hours worked by the staff of the service-providing companies, thereby making it impossible for the tax authorities to determine the exact amount of tax collected.
After audit , additional information was provided by those companies but was not accepted by the tax authority as a sufficient basis to allow the deduction of the various VAT amounts. The tax authorities took the view that the information concerned either private contracts for services submitted late, after completion of the tax audits and after communication of the adjustments that that authority intended to make, and therefore of no certain date and not binding on third parties, or invoices that were supplemented after they had been issued, at the stage of the administrative procedure, by handwritten references to the number of hours worked by staff, the hourly rate for work and the nature of the services provided and which, therefore, according to the tax authority, lacked any probative value.
The ECJ ruled that the right to deduct VAT may be refused to taxable persons who are recipients of services and are in possession of invoices which are incomplete, even if those invoices are supplemented by the provision of information seeking to prove the occurrence, nature and amount of the transactions invoiced after such a refusal decision was adopted.
The ECJ has held that even where deduction of VAT is denied to a recipient of a supply, it does not follow that the VAT shown need be refunded to the supplier.
References to national legislation